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Billions in Office Market Value at Risk as GSA Considers Massive Lease Reductions

For the last week, the office industry has been concerned about a new threat. The Trump administration might direct the General Services Agency to not only sell a number of government-owned office buildings but to cut enormous numbers of existing space leases with private owners.

Could this happen? Possibly. It’s not the first time federal agencies and the GSA have looked into cutting back the space used by the government. However, put that to the side for a moment. A new Trepp analysis looked at the potential impact on the office markets in the top 10 metropolitan statistical areas (MSAs) if the GSA pared back leases.

The agency manages about 149.5 million square feet of office space on behalf of the federal government with a total annual rent of $5.25 billion and an average office rental rate of $35.09 per square foot.

The number of leases that GSA could terminate in 2025 is about 5% of the total, which would reduce annual leasing costs by almost $260 million. Over the 2025–2028 period of Trump’s second term, the total would be more than 53 million square feet — 35.5% of GSA-leased space over 2,532 properties. That would be 35.56% of the total annual rent, or $1.87 billion. If the cancellations started and the process ran through 2034, the space would fall by 63.47% and the annual rent would by 64.61%.

So, not all of the leases could be simultaneously canceled. However, cumulative damage to markets would be severe. Through 2028, the current NOI loss at a 40% expense ratio for 50% termination would be $559,586,768. Rent loss capitalized at the current average securitized implied cap rate (7.56%) would be $7,401,941,377.

There are 446 properties in Washington-Arlington-Alexandria, DC-VA-MD-WV, the largest of any of the MSAs in question. The GSA percentage of total office market space is 9.70%. That’s almost 9.6 million square feet of space with termination rights in 2025 or prior, 26.82%. The office rent per annum with 2025, or earlier termination rights represents $384,177,177, or 26.13%.

New York-Northern New Jersey-Long Island, NY-NJ-PA has 223 properties, with 0.73% of the total office market at $249,380,295 rent per annum. Space with 2025 or earlier termination rights is 30.68% of the GSA total, with $74.5 million in annual rent and 29.89% of the GSA total in the area.

The next largest is Los Angeles-Long Beach-Santa Ana, CA with 168 properties or 1.36% of the total office space in the region. Space with termination rights in 2025 or earlier is 34.96%, representing 31.10% of annual rent.

Philadelphia-Camden-Wilmington, PA-NJ-DE-MD is fourth with 124 properties, or 2.86% of the total office space, 23.58% with 2025 or earlier termination rights, and 20.82% of the total annual rent.

Fifth is Chicago-Joliet-Naperville, IL-IN-WI: 113 properties, 0.96% of the total office market, 38.39% of GSA space with 2025 or earlier termination rights, and 34.16% of the GSA’s total rent in the region.

If enough of the termination clauses are exercised, these local markets and others could face market disruption without equivalent replacement tenants necessarily at hand.

Reprinted with permission from the Thursday, 30 January 2025 07:02:09 EST online edition of GlobeSt © 2025 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com.