{"id":1004750604,"date":"2025-03-14T04:56:16","date_gmt":"2025-03-14T12:56:16","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004750604"},"modified":"2025-07-03T01:50:27","modified_gmt":"2025-07-03T09:50:27","slug":"potential-federal-building-sale-adds-uncertainty-to-cre","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/potential-federal-building-sale-adds-uncertainty-to-cre\/","title":{"rendered":"Potential Federal Building Sale Adds Uncertainty to Office Sector"},"content":{"rendered":"\n

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The U.S. Department of Justice building was one of the assets on the General Services Administration’s initial list of property dispositions. Image by blvdone\/stock.adobe.com<\/em><\/figcaption><\/figure><\/div>\n\n\n

The General Services Administration, which is the largest landlord in the country (at an estimated 360 million square feet), surprised the commercial real estate industry and other interested parties earlier this month when it published a list of 440 buildings owned by the Federal Government that would potentially be sold off. This list included the FBI headquarters and the main Department of Justice building, among many others in Washington, D.C., and elsewhere.<\/p>\n\n\n\n

Soon a revised and shorter list was published. Then after that, the list disappeared from the GSA website, with a note that a list would be coming soon.<\/p>\n\n\n\n

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LISTEN TO:<\/strong> Step Into My Office: \u201cWait and See\u201d for DC?<\/a><\/p>\n\n\n\n

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\u201cWe are identifying buildings and facilities that are not core to government operations, or non-core properties, for disposal,\u201d the website said. \u201cSelling ensures that taxpayer dollars are no longer spent on vacant or underutilized federal spaces.\u201d<\/p>\n\n\n\n

Adding uncertainty to CRE<\/h2>\n\n\n\n

The idea may not be new\u2014previous administrations have eyed plans for federal facilities sales, and the military has been consolidating for years\u2014but the current approach has generated a lot of uncertainty regarding potential impact of office assets and other spaces coming to various markets in a short time, David Tarter told Commercial Property Executive<\/em>.<\/p>\n\n\n\n

\u201cEven if a part of these offices come back in the market, that would depress prices and cause a lot of difficulty,\u201d said Tarter, who formerly was a five-term mayor of Falls Church,\u00a0Va., and currently is executive director of the Center for Real Estate Entrepreneurship at GMU\u2019s Costello College of Business.<\/p>\n\n\n

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Easterly Government Properties President & CEO Darrell Crate. Photo courtesy of Easterly Government Properties<\/em><\/figcaption><\/figure><\/div>\n\n\n

Still, there is some rationale for a sale. The GSA maintains more than $80 billion in deferred maintenance liabilities on its owned portfolio with a weighted average age of 49 years, and has stated its priority to reduce these liabilities by selling older, Class B or C buildings in favor of newer leased buildings, said Darrell Crate, president & CEO of Easterly Government Properties, which specializes in owning properties leased to the federal government through the GSA.<\/p>\n\n\n\n

Crate mentioned that many of these assets, now obsolete, will probably be transitioned to the private sector. \u201cWe\u2019ll likely see heightened interest in new Class A assets as employers seek attractive office space with amenities to entice workers back into the office,\u201d he added.<\/p>\n\n\n\n

The potential for pain<\/h2>\n\n\n\n

Even so, the potential for pain is there. The D.C. office market would be hit hardest, but cities across the country with a federal presence will also feel the effects, according to Tarter. Moreover, if early lease terminations accelerate, market disruption will be even more severe.<\/p>\n\n\n\n

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READ ALSO:<\/strong> Office Prices Slide as Discounts Surge<\/a><\/p>\n\n\n\n

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\u201cFor example, in Virginia, a significant portion of local government budgets come from property tax revenue, so if you’re Arlington County, a portion of your revenue\u2014and it’s not an insignificant portion\u2014comes from commercial real estate property taxes,\u201d Tarter said. \u201cWhen a building’s empty, it’s worth a lot less than it is when it’s full.\u201d<\/p>\n\n\n

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\"headshot<\/a>
David Tarter is the executive director of the Center for Real Estate Entrepreneurship at GMU\u2019s Costello College of Business. Photo courtesy of David Tarter<\/em><\/figcaption><\/figure><\/div>\n\n\n

That kind of impact would have a ripple effect. Industries reliant on office workers, such as restaurants, transit, and retail, could suffer declining demand, Tarter noted. That would echo the disruption seen during the pandemic.<\/p>\n\n\n\n

The federal government could work with local governments, with landlords and other local stakeholders, to slowly use the supply back on the market, he went on to say.<\/p>\n\n\n\n

\u201cBut they don\u2019t seem inclined to do that,\u201d Tarter mentioned. \u201cJust the opposite\u2014get rid of everything in one fell swoop.\u201d<\/p>\n\n\n\n

Local governments know this is a possibility, and some are preparing, he concluded. Some local governments, like Arlington, are already adjusting zoning laws to make it easier to repurpose vacant office buildings for residential, hospitality and mixed-use spaces. But it will never be easy to convert a lot of office buildings, as the history of office properties since the pandemic has shown.<\/p>\n\n\n\n

The complexities of selling governmental buildings<\/h2>\n\n\n\n

Selling off buildings en masse may not be that simple in any case. There are several issues that investors will grapple with when evaluating the federal buildings that have been proposed for disposition by the federal government, Nathan Edwards, senior director, D.C. metro research at Cushman & Wakefield, told CPE<\/em>. <\/p>\n\n\n

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Nathan Edwards is a senior director, DC metro research at Cushman & Wakefield. Photo courtesy of Cushman & Wakefield<\/em><\/figcaption><\/figure><\/div>\n\n\n

The vast majority of the federal buildings slated for disposition are aging and require millions in upgrades to meet current market standards, Edwards mentioned. For example, often enough the buildings do not comport with modern standards for window line, column spacing, HVAC and so forth. <\/p>\n\n\n\n

\u201cThis heavy modernization requirement will demand significant capital, or a very low basis to incentivize renovation and repurposing of the assets, or both,\u201d he said.<\/p>\n\n\n\n

Edwards added that many of the buildings in metro D.C. are classified as historically significant and therefore have restrictions on the type and scope of redevelopment. \u201cThe extent to which the historical designation can be eased to expedite a transfer remains unclear at this point.\u201d<\/p>\n\n\n\n

\u201cThe buildings could ultimately be leased\u2014traditional, ground leased\u2014to non-government occupiers and investors,\u201d he said. \u201cIf structured thoughtfully, this could yield benefits for the federal government, the U.S. taxpayer, the District of Columbia, and the investors and owners who play a part in the transformation.\u201d<\/p>\n\n\n\n

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READ ALSO:<\/strong> DC Office Investment Picked Up Steam in 2024<\/a><\/p>\n\n\n\n

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The GSA has stated that its owned property reductions will be focused on the non-core general office space that will be replaced as needed in the private leased market. These buildings, primarily used for administrative functions, don\u2019t support mission-critical areas of the government such as law enforcement, drug analysis and border protection, Crate mentioned.<\/p>\n\n\n\n

Each of these areas require highly specialized facilities to enable government workers to execute their missions, and the private sector has a demonstrated track record of building and managing that real estate at a lower cost.<\/p>\n\n\n\n

\u201cAs a result, we\u2019re likely to see a noticeable increase in the square footage of the government-leased space versus owned,\u201d Crate predicted.<\/p>\n\n\n\n

He also said that, over the next five years, the supply of commoditized office inventory which will be repurposed into retail or residential space might increase.<\/p>\n","protected":false},"excerpt":{"rendered":"

What happens next is unclear, but there might be a wave of space coming on the market, and not just in D.C.<\/p>\n","protected":false},"author":1023,"featured_media":1004750635,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21808,21783,23891,21742,21747,51037],"tags":[32799,32907,37501],"class_list":["post-1004750604","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-investment","category-national","category-latest","category-office","category-trends","tag-cushman-wakefield","tag-easterly-government-properties-inc","tag-general-services-administration"],"acf":[],"yoast_head":"\nPotential Federal Building Sale Adds Uncertainty to Office Sector - Commercial Property Executive<\/title>\n<meta name=\"description\" content=\"Three industry experts share their views of the potential impact of GSA selling a significant amount of office buildings across the U.S.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/potential-federal-building-sale-adds-uncertainty-to-cre\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Potential Federal Building Sale Adds Uncertainty to Office Sector\" \/>\n<meta property=\"og:description\" content=\"Three industry experts share their views of the potential impact of GSA selling a significant amount of office buildings across the U.S.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/potential-federal-building-sale-adds-uncertainty-to-cre\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2025-03-14T12:56:16+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-07-03T09:50:27+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2025\/03\/U.S.-Department-of-Justice-building.jpeg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"900\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Dees Stribling\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/potential-federal-building-sale-adds-uncertainty-to-cre\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/potential-federal-building-sale-adds-uncertainty-to-cre\/\",\"name\":\"Potential Federal Building Sale Adds Uncertainty to Office Sector - 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