For CRE, the motto in 2024 was “Survive till 2025” via extend-and-pretend. Now it’s 2025, and here comes the government’s office space.
By Wolf Richter for WOLF STREET.
The DOGE people in the Trump administration are considering shedding a big portion of the massive office space that the government owns or leases nationwide, managed by the General Services Administration (GSA), including selling two-thirds of the office space the government owns and terminating three-quarters of the leased office space, according to the WSJ.
Much of this office space is vacant or underused and poorly maintained due to lack of funding, according to GSA testimony before Congress in 2023, cited by the WSJ, which further noted:
“A recent report from Sen. Joni Ernst, a Republican from Iowa who chairs the Senate DOGE caucus, found that not one of the headquarters for any major agency or department in Washington is more than half full. GSA-owned buildings in Washington, D.C., average about a 12% occupancy rate. The government owns more than 7,500 vacant buildings across the country, and more than 2,200 that are partially empty.”
The office sector is already in a depression, with default rates that exceed those during the worst moments of the Financial Crisis. Putting this inventory on the market for sale is going to weigh on the already collapsed prices of older office buildings – prices of 50-70% below the last sale before the pandemic are now common.
And terminating leases is going to stress office buildings, their landlords, and their lenders even more, likely entailing more defaults and foreclosure sales. This is a much needed but very bitter medicine to alleviate government waste.
What office landlords and their lenders are facing.
Here we look at the leased office space, where those buildings are, and what portion of the leased space the GSA has the right to terminate in 2025, and also through 2028 (Trump 2.0), based on an analysis from Trepp, which tracks commercial real estate debt and CMBS.
- GSA leases 149 million square feet (msf) of office space around the US.
- GSA pays $5.2 billion in annual rent to private-sector landlords.
- Through 2028, GSA has the right to terminate 53.1 msf of leases, or 35.5% of its leased space, spread over 2,532 properties.
- In 2025, GSA has termination rights on 21.2 msf spread over more than 1,000 properties,
- If GSA terminates all possible leases during Trump 2.0, it would save the government $1.87 billion in annual rent after 2028.
- In the vast Washington DC metro, GSA leases nearly 10% of the entire office market, 35.8 msf in 446 buildings, and can terminate 9.6 msf of that in 2025.
- In the Washington D.C. metro, GSA currently pays $1.47 billion in annual rent.
- GSA leases nearly 6% of the office space in the Kansas City metro (DoD, USPS, Treasury, VA, and USDA), 4.3 msf, of which it can terminate 1.0 msf in 2025.
Here are the top 10 metros in terms of government office space. GSA leases 66.3 msf of office space in them and has termination rights in 2025 on 18.9 msf (28.5%):
| Metropolitan area | Number of buildings | Office space msf |
% of total market | Annual Rent, Million $ | Space with termination rights in 2025, msf |
| Washington DC | 446 | 35.8 | 9.7% | $1,470 | 9.59 |
| New York City | 223 | 5.0 | 0.7% | $249 | 1.53 |
| Hagerstown-Martinsburg | 60 | 4.8 | N/A | $210 | 1.58 |
| Kansas City | 78 | 4.3 | 5.8% | $99 | 1.03 |
| Philadelphia | 124 | 3.0 | 2.9% | $97 | 0.71 |
| Atlanta | 90 | 3.0 | 1.9% | $68 | 1.35 |
| Los Angeles | 168 | 3.0 | 1.0% | $134 | 1.04 |
| Dallas-Fort Worth | 86 | 2.8 | 1.4% | $82 | 0.57 |
| Chicago | 113 | 2.4 | 1.0% | $92 | 0.93 |
| Denver | 74 | 2.3 | 2.3% | $77 | 0.58 |
| Total | 1,462 | 66.3 | $2,576 | 18.9 |
Office CRE would be stressed enough without this.
The office sector of commercial real estate is in a depression, and office debt just keeps getting worse: The delinquency rate of office mortgages across the US that have been securitized into commercial mortgage-backed securities (CMBS) spiked to a record 11% at the end of 2024, blowing by the Financial Crisis peak, having exploded over the past 24 months from an everything-is-just-fine 1.6% at the end of 2022, to a disastrous 11.0% at the end of 2024.
The motto in 2024 was “survive till 2025” via extend-and-pretend. But now it’s 2025, and here comes the government’s vacant office space.
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