Washington, D.C.’s local economy and commercial real estate market could feel the impact of a Trump administration plan to move federal agencies out of the D.C. region to less costly areas of the country.
Federal agencies have until mid-April to provide suggested relocations of bureaus and offices in the region, according to reporting by The Washington Post. The directive comes amid a broader push led by the Department of Government Efficiency to cut costs and reduce the size of the federal government, which includes downsizing its real estate footprint. A disproportionate amount of government office space reductions is expected to be focused on the D.C. area.
D.C. Mayor Muriel E. Bowser was among city leaders who expressed optimism that federal buildings could be repurposed and boost the vibrancy and residential life near downtown and the National Mall, which have suffered in the wake of the pandemic and remote work. However, efforts to move government offices out of the region are likely to impact the local economy negatively, according to the Post article.
For the CRE market, a widespread cancellation of government leases would be devastating to commercial landholders in the D.C. market, said Diana Parks, chair of the National Federal Development Association, which represents landlords who lease to the federal government.
“For all of it to hit the market in a short time, it’s just a supply-and-demand issue that’ll drive down the value of that real estate considerably,” Parks told The Washington Post.
President Trump experimented with relocating federal offices out of D.C. during his first term, including moving the Bureau of Land Management headquarters to Grand Junction, Colorado. The move highlighted one of the potential challenges of relocating federal operations when more than 87% of affected BLM employees resigned or retired rather than move.
The local markets may also face challenges integrating national agencies into their communities. For example, two federal properties in Chicago’s central business district – the John C. Kluczynski and Ralph H. Metcalfe buildings – sit next to a federal courthouse, making security a major issue, according to The Real Deal. Developers may be hesitant to take on buildings with restrictions on sightlines into court facilities, and the properties could require years of work and major investment, the article said.
It will likely take some time for the D.C. region to feel the impacts of office relocations. Fewer than half of existing government leases are currently eligible to be terminated, said Marcy Owens Test, a former GSA official who now leads the Federal Lessor Advisory Group at CBRE.