Reduction in Federal Space to Have Minimal Impact on Emerging U.S. Office Market Recovery

Executive Summary

• Ongoing reductions in federal office space by the General Services Administration (GSA) are expected to have minimal impact on the national office market. The GSA leases about 1.7% of total U.S. office inventory across more than 1,800 cities. For every 10% reduction in GSA-leased space, the overall office vacancy rate would increase by 20 basis points (bps).
• For the first time in 18 quarters, the U.S. office vacancy rate fell in Q4 2024 due to improved demand and reduced new supply. While this potential stabilization sets the stage for an office market recovery, the reduction in GSA-occupied space could pose a moderate headwind. Much will depend on how quickly and effectively the agency can shrink its portfolio, as well as navigate lease termination rights and the complexity of selling owned and occupied buildings.
• The impact will be most pronounced in Washington, D.C., Suburban Maryland and Northern Virginia, which have the highest concentrations of GSA-leased space. The near-term impact in these markets will be mitigated by the relatively small share of cancellable leases within their current GSA footprint.
• Already weak demand for Class B/C buildings will be exacerbated by the GSA space reduction, further bifurcating a polarized U.S. office market.
• Based on data compiled on March 26, 2025, if all publicly listed GSA leases marked as “terminated” and that have an ongoing termination right were vacated, the overall U.S. office vacancy rate would increase by 10 bps.

The 12-year effort to reduce the federal real estate footprint is accelerating due to budget cuts and Department of Government Efficiency (DOGE) initiatives. Concurrently, the Trump administration has mandated a full return to office for all federal employees, adding complexity and uncertainty regarding space elimination. The GSA¹ is reviewing options to optimize its real estate footprint and building utilization, including eliminating underutilized leased space and selling its outdated owner-occupied office buildings.

The GSA recently announced plans to cut its leased and owned portfolio by 50% after reducing its leased space by only 13% between 2013 and 2024.² The Trump administration wants to quickly sell unused federally owned buildings and move government agencies to more efficiently managed leased space. Despite this dramatic shift, the impact on the U.S. office market is expected to be minimal due to the GSA’s small share of total U.S. office inventory, its widely dispersed leased space and the potential difficulty in selling federally owned buildings across major markets.³

Measuring the Impact

The overall U.S. office vacancy rate stabilized near a 30-year-high 18.9% at the end of 2024 after rising for 18 consecutive quarters. However, the termination of government leases announced over the past few months has raised concerns about the durability of the fledgling national office market recovery.

GSA-leased space across the 58 markets⁴ tracked by CBRE totals 69 million sq. ft. or 1.7% of total U.S. office inventory. We estimate that the U.S. vacancy rate would increase by approximately 20 bps for every 10% reduction in GSA-leased office space.

Thus far, the Trump administration has announced the termination of 679 leases totaling 7.8 million sq. ft. across all property types nationwide. More than 75% of these leases are for less than 10,000 sq. ft. and just 4% are for more than 50,000 sq. ft., limiting the negative impact. Nearly 65% of the GSA leases announced for termination are “soft term,” meaning they have an ongoing termination right that can be exercised without penalty. If all this soft-term space were terminated, CBRE estimates it would increase the U.S. office vacancy rate by only 10 bps.⁵

Market Exposure Varies

Markets with relatively high concentrations of GSA-leased space will be more adversely impacted by federal space cuts. Washington, D.C. (district only) has the largest concentration of GSA-leased office space totaling nearly 15 million sq. ft. or almost 12% of its total office inventory. Suburban Maryland (10.3%) and Northern Virginia (9.2%) have the next highest concentrations of GSA-leased space. The GSA is a less consequential tenant in other large markets, accounting for just 2.7% of leased office space in Baltimore, 2.1% in Kansas City and 1.7% in Philadelphia—each for less than 2 million sq. ft.

Figure 1: Top 20 Office Markets for GSA-Leased Space

If 10% of the GSA-leased office footprint were eliminated in Washington, D.C., the office vacancy rate would increase by 110 bps to 23.6%, whereas a 10% reduction in Dallas would increase the vacancy rate by only 10 bps to 26.9%.

Figure 2: Impact of a 10% Reduction in GSA-Leased Office Space on Vacancy by Market (ranked by total GSA-leased space)

In large markets where leasing activity has recently rebounded and the GSA footprint is relatively small (Atlanta, Boston, Los Angeles and Manhattan⁶), the impact of GSA portfolio reductions will likely be minimal. However, in markets such as Washington, D.C., Dallas and Philadelphia where the GSA footprint is bigger than in other markets, the near-term impact may be greater. Conversely, any relocation of government agencies from federally owned space, which CBRE does not track, to available leased space could help reduce vacancy rates in many markets. This would particularly help Washington, D.C., which has a high concentration of federal occupancy.

We expect continued bifurcation across U.S. office markets, where amenity-laden newer or recently renovated buildings in the best locations are most in demand and commodity space struggles to attract and retain tenants. As government-leased space is terminated and becomes available, we expect shadow space in quality buildings and connected locations to lease more quickly than space that is vacated in outdated buildings in fringe locations. This will exacerbate the glut of Class B/C space and put further downward pressure on rents.

How GSA Building Dispositions Factor In

In addition to leased space, the GSA has announced plans to dispose of its non-core owned assets. These owned buildings are not tracked by CBRE and are described by the GSA as “functionally obsolete and unsuitable for federal use” due to lack of congressional funding. The GSA does not have authority to sell buildings until it removes all existing tenants (largely government agencies).

Since GSA disposition data is ever changing, how these owned buildings will affect the office market once sold remains unclear. However, it is unlikely that these buildings will be reused as office space without significant improvements. Additionally, the sale of some of these properties could lead to retrofit, demolition or adaptive reuse projects, which could have positive impacts within certain markets and submarkets, especially where there are clusters of these buildings. This is especially true for cities like Washington, D.C., Chicago and Dallas where there is a large GSA-owned footprint and significant activity is already underway to convert obsolete buildings and create vibrant, mixed-use communities.

The relocation of government agencies from federally owned to privately owned buildings may benefit certain markets by increasing demand for space, while the owned buildings, which CBRE does not track, will likely be demolished or converted to another use.

Figure 3: Top Markets for GSA-Owned Real Estate (all property types)