In The News

By Emily Wishingrad

While the effects of the pandemic on private sector office usage have become increasingly clear, the future of the federal footprint is still largely up in the air. The fate of these millions of square feet of offices is an unanswered question worth billions of taxpayer dollars.

Federal government agencies are using just 12% of the space in their headquarters buildings on average, a report last month from the Public Buildings Reform Board found, the latest in a growing body of evidence that the federal government is sitting on a mountain of unused office space. 

“It shows that those decisions are not getting made,” Dan Mathews, who oversaw the federal government’s real estate portfolio under the Trump administration and is now a member of the PBRB, said of the report. “The buildings are mostly empty.” 

The report concludes that a change of course on federal office policy is “urgently needed” to reduce the waste of taxpayer money. 

The findings are just the latest in a series of alarm bells that have been sounded over the last year about the federal government's bloated office footprint, bringing the issue to the forefront and leading to louder calls for change.

The General Services Administration, the federal government's real estate arm, owns and leases more than 363M SF, 90M SF of which is in the nation’s capital, according to the PBRB. A division of the GSA, the Public Buildings Service, oversees the sprawling portfolio and spends $2B a year to maintain government-owned agency office space and another $5B to lease space for agencies.

The 1M SF Department of Health and Human Services headquarters in Southwest D.C. had a 14% utilization rate last year, based on a capacity of 200 SF per employee, the PBRB found, using anonymous cellphone data between January and September 2023 to measure occupancy at 23 large government buildings in D.C. It also found the 500K SF Treasury Building next to the White House is at 22% occupancy. 

Keeping those massive, aging buildings running with minimal utilization amounted to billions of dollars in wasted federal money, the report says. 

At the Frances Perkins Building, the Department of Labor's 1.9M SF headquarters, only 441 office workers show up on an average day. The department pays nearly $60M to operate and rent the building, meaning the government is paying $182K in annual building costs per regularly attending employee, according to the report. 

“This level of expenditure to house such a small number of federal employees cannot be justified and is not sustainable,” the report says. 

A Government Accountability Office report last summer found that a majority of the agencies it surveyed used 25% or less of their headquarters.

“I think the GAO report that came out last July was instrumental in helping people see the current reality of this massive level of unutilization,” Norman Dong, partner at FD Stonewater and Public Buildings Service commissioner under the Obama administration, told Bisnow. 

Congress members grilled GSA leaders on the issue in July, following the GAO report’s release, and last month the House passed two bills intended to speed up the rightsizing of the federal office footprint. 

“The federal government keeps on leasing space and owning space that's simply just not being used at all,” Rep. Scott Perry, a Republican from Pennsylvania who sponsored the bills, told Bisnow in an interview.

Efforts to cut the federal footprint have been in the works for over a decade. The GSA says it has reduced 14M SF in leases and disposed of nearly 12M SF since 2013. But the pandemic has accelerated these efforts, as many employees have shifted to remote work — the PBRB report found usage last year was 30% of 2019 levels — leaving more office space empty. 

“We’re getting to a point where there’s a greater sense of urgency both in Congress and in the executive branch to deal with the problem,” Dong said. 

In November, the GSA announced an effort to dispose of 23 properties totaling 3.5M SF, a move expected to save taxpayers $1B over 10 years. The GSA billed the initiative as an effort to “accelerate” rightsizing the federal footprint.

In its latest 2025 budget proposal last month, the White House asked for $425M for a new real estate optimization program to make better use of federal space and dispose of unnecessary federal facilities. The White House is also proposing the GSA gain access to revenues and collections out of the Federal Buildings Fund and that it have the authority to independently approve up to $10M in prospectus funding without going through Congress.

“Many agencies are assessing their long-term workspace needs, and GSA is focused on partnering with them to figure out the best solution for their mission, while maximizing benefits to communities and taxpayers,” a GSA spokesperson told Bisnow in a written statement. 

But with a presidential election looming, those in charge of leading this effort could change in less than a year, creating greater uncertainty around the direction of the federal office footprint. 

“I don’t think there’s a lot likely to be similar between a continuation of a Biden administration or a new Trump administration,” said Cushman & Wakefield Executive Vice Chair Darian LeBlanc, a top government office leasing broker. 

“Both of these politicians have different initiatives and very different styles. … We’re just going to have to wait that out to see who gets elected and then how this all ultimately gets taken up,” he added. 

'Use It' Or Lose It

Attention to curbing the size of the federal office portfolio began during the Obama administration in 2013 with Freeze the Footprint, which morphed into Reduce the Footprint in 2015. But reductions over the last two years or so have been larger and more widespread than in the decade before, LeBlanc told Bisnow.

“It’s a more drastic downsize,” he said, estimating that new federal lease requirements call for about 20% to 40% reductions across the board. 

Last year, the Patent and Trademark Office vacated two of its five buildings in Alexandria, reducing its footprint from 2.4M SF to 1.6M SF.

The National Labor Relations Board is planning to cut its 153K SF in D.C.’s Navy Yard area by at least 40% when its lease expires in 2025. The Department of Justice sent out a solicitation that sought to reduce 150K SF of its office space at NoMa’s Constitution Square in 2025.

Dong said the GSA and agencies are making “decent progress” on reducing leased space, but it has proven more difficult to cut space in properties the government owns. 

“If you look at the federally owned portfolio, I think that’s a lot harder, a lot more complex, a lot more costs involved in terms of reconfiguring federal space to meet reduced agency requirements,” he said. “We’ve seen much less progress on that front.”

While the GSA is moving forward with the effort to dispose of 23 owned properties, LeBlanc said that constitutes a “teeny, teeny fraction of the overall space the federal government owns.”

The leased portfolio can be easier to shrink due to the cadence of deals expiring, and the next five years present a big opportunity to consolidate leases, as half of the GSA’s leased portfolio is expiring in the next five years, then-PBS Commissioner Nina Albert told Congress in September.

“So many of the leases come up within the next five years, that gives us a real opportunity to do this and do it in a smart way so that we do save money, not end up spending more money,” Rep. Dina Titus, a Democrat from Nevada who serves as ranking member on the House Transportation and Infrastructure Subcommittee on Economic Development, Public Buildings and Emergency Management, told Bisnow.

But there is pressure to further accelerate that process.  

“When you have a 25% utilization rate or a 9% utilization rate — that's literally what the GAO found — just reducing the requirement by 20% isn't going to answer the mail, right? It's not going to get the job done,” said Perry, the chair of the subcommittee. 

The House last month passed the two Perry-sponsored bills that look to take more proactive measures to cut leased and owned space. 

The USE IT Act of 2023 outlines a policy for the Office of Management and Budget and GSA to track office usage. If they find that usage is less than 60%, those agencies would be required to take steps to reduce the tenant agency’s space. That could include consolidating it with another agency, selling or disposing of excess space, and adjusting square footage requirements for replacement space.

“It just says if you're going to have a building, you've got to use the building,” Perry said. “That's all we're saying.” 

The USE IT bill passed primarily with Republican support. Only six of 207 Democrats voted yes.

Titus said she wanted a clearer notion of how the bill defined occupancy, saying it didn’t account for alternate work schedules that have been in place for years or employees who split time between in-office and fieldwork. 

The Biden administration opposed the bill, writing in a statement to Congress that “while the Administration believes that the Federal real estate portfolio needs to be evaluated and optimized,” the legislation doesn't consider the individual needs of each agency or the state of the buildings themselves. 

Perry and Titus co-sponsored the other bill, the FASTA Reform Act of 2023. It would extend the PBRB’s operations through 2026 and require agencies to hand over data about their properties and details of plans to consolidate or reconfigure their space to the board. It doesn’t appear that Biden has taken a position on the bill. 

The PBRB, created in 2016 under the Obama administration, is charged with making recommendations to the OMB on the sale, disposal and redevelopment of high-value, underused or unnecessary federal property. The board is composed of two former PBS commissioners, two former members of Congress and two real estate executives. 

The board has recommended two buckets of federal property for disposal so far. Through a high-value round in 2019, it recommended disposing of 12 properties, 10 of which subsequently sold for $193M, with the two remaining properties estimated to generate $300M. In 2020, it submitted its next round of disposal recommendations totaling $275M, which the OMB rejected, the PBRB said in its report. A third bucket of properties recommended for disposition is expected to be released in December. 

“This would make that agency more effective in doing what the original intent was,” Titus said of the FASTA bill.

Roadblocks And Uncertainty

There are a number of factors that have made it difficult to move rightsizing efforts along, especially when it comes to dispositions.  

A major challenge is coordinating the sheer number of players in the mix: Congress appropriates money for federal offices, agency leadership determines each office's needs and leases space from the GSA, federal worker unions negotiate in-office policies, the GSA owns buildings and leases space from the private sector, and the OMB outlines federal work policies and funding priorities. 

“[There are] a lot of cooks in the kitchen,” the PBRB's Mathews said. “And without elevating the problem to a level where decision-makers who can actually make those decisions start making those decisions, not much will happen. And I think that really kind of defines the last few years.” 

The PBRB wrote in its report that trying to get data has been a fraught experience. It blamed the OMB for not requesting occupancy data from agencies, as it is required to do, and agencies for not sharing the information.

“That's part of what drove the board to turn to the cellphone data to get occupancy data,” Mathews said. “How do you know if a building should be disposed or not if you don't know if it's been used or not?”

Money is another issue. The GSA has long angled to take full control of the Federal Buildings Fund, which captures rent paid from agencies to the GSA, as a way to accelerate and streamline disposal, and it is again asking for access as part of the 2025 budget. In 2023, the fund generated $11.8B in gross revenue. 

An OMB spokesperson referenced the monetary consideration in an email to Bisnow. 

“The Administration is committed to right sizing the Federal footprint,” the spokesperson said. “We have re-started capital planning and are working with agencies and GSA to develop space utilization analytic tools and metrics to identify and prioritize projects to dispose or consolidate office space to increase office space utilization. Office disposal and consolidation projects are often expensive to implement and absent the necessary resources including those proposed in the FY25 Budget it will be difficult to improve office space utilization.” 

Meanwhile, decisions about what to do with federal office spaces have been hindered by uncertainty over how many federal employees will work in offices in the future. 

The Biden administration has released a series of memoranda directed at federal agency leadership, with the latest last August, asking employees to come back to the office more often. 

But the federal government’s return-to-office progress has been opaque, with each agency determining its own required level of in-office work per pay period and federal unions holding a large part of the bargaining power. 

“There are still a lot of unanswered questions actually, in terms of what will a normal work pattern look like and then what impact will that have on what real estate footprint consists of,” C&W's LeBlanc said. “And I don’t know that there are any good answers out there right now.”

American Federation of Government Employees Public Policy Director Jacqueline Simon said that earlier in the pandemic, the AFGE, which represents 750,000 employees, negotiated many new union contracts and memoranda of understanding determining a maximum number of in-person days, which vary “tremendously from agency to agency.” She said remote work has become an “important recruiting and retention tool” for federal employees.

“One of the things we all learned from the pandemic is that more people can successfully telework than previously understood,” Simon said. “There are a lot of reasons to continue telework, most important of which have to do with the fact that people really want it.”

The PBRB’s report ultimately says more leadership from the top levels of government is needed to respond to the unprecedented moment. 

It says real estate in the private sector is undergoing a similar upheaval but meeting with a swifter response.

“The federal taxpayer deserves the same approach to federal real estate management,” it says. 

“The government really needs to make some hard choices about what will it keep, what will it dispose,” Mathews said. “It’s a very significant problem. It’s going to get worse before it gets better, and which path the government takes will have a great impact on the local economy, on the agency missions and on federal employees and, of course, the taxpayer.”

View original article: https://www.bisnow.com/washington-dc/news/office/urgency-to-address-the-federal-footprint-amps-up-as-the-scale-of-unused-space-comes-into-focus-123621