From our CRE Service Delivery and Outsourcing Thought Leader Contributor, EY.

Consolidating the federal real estate portfolio could cut operating costs and free up funds for other critical government projects.

In brief:

• Half of the leased federal portfolio expires within five years, creating a substantial opportunity for agencies to assess their future real estate needs.¹
• The federal government’s approach to enhancing its real estate has been brought into sharper focus by the shifting dynamics of the workforce.
• Decades of physical space underutilization suggest that a simple return-to-work policy post-pandemic will not suffice as a solution.

The agencies comprising the Federal Real Property Council (FRPC) spend approximately $2 billion a year to operate and maintain the owned federal real estate portfolio.³ A 5% reduction in operations and maintenance (O&M) spend across FRPC agencies would save approximately $100 million dollars in year one.

While there are many opportunities associated with rightsizing the federal real estate portfolio, the actual execution of such a strategy is still a herculean task. The Public Buildings Reform Board (PBRB) is tasked with scrutinizing the government’s portfolio, identifying high-value, low-usage owned properties that are ripe for disposal. These efforts have intensified with the PBRB looking at 27 high-value federal properties, which have around 11 million square feet of underutilized office space. Shedding this space could result in more than $4 billion in savings over 30 years.²

Mitigate the impact of vacating real estate

When the government moves out of buildings or has low occupancy, the ripple effects are felt throughout the local economy. The absence of federal employees translates to reduced foot traffic for nearby businesses, from eateries to retail shops, mirroring the economic downturns seen when military bases are shuttered or when highways are rerouted away from cities. Low occupancies and closures can devastate local economies that have grown dependent on the patronage of government employees and the infrastructure that supports them.

Therefore, while the disposal of excess government properties can be financially beneficial for the federal budget, it is imperative to consider and mitigate the potential economic impact on the communities that have long served and supported these federal installations.

To soften the economic blow of offloading excess government properties, strategic foresight and collaboration with local stakeholders are crucial. The federal government can work with local governmental entities to repurpose these spaces into vibrant mixed-use developments or innovation hubs, potentially attracting new business and fostering job creation. Incentives for private investment and support for small businesses can also help maintain economic stability. Public-private partnerships could be instrumental in this transition, leveraging private sector ingenuity and capital not only to fill the void left by government withdrawal but also to catalyze a broader economic revitalization that benefits the entire community.

By incorporating a comprehensive approach to the disposition strategy that includes community impact considerations, agencies can navigate the intricacies of property optimization. Effective disposition not only allows for the reduction of costs and the assessment of the government’s real estate portfolio, but it can also provide a financial boost to the federal budget. Furthermore, a carefully planned property disposition considers the wider economic and community impact, aiming to benefit both the government and the local areas.

Summary

Inaction on federal real estate can lead to resource waste and a less attractive, functional environment, impacting both the workforce and local economies. With remote work on the rise, the need for some spaces declines. Neglected government properties can harm local businesses, similar to military base closures or highway reroutes. Strategic management is crucial to balance agency and community needs, prevent inefficiencies and support a productive workforce.

The views reflected in this article are those of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.

References

1. “Agencies coming around to sharing office space as future plans come into focus,” Federal News Network website, https://federalnewsnetwork.com/facilities-construction/2023/03/agencies-coming-around-to-sharing-office-space-as-future-plans-come-into-focus/#:~:text=The%20latest%20trend%20the%20General,and%20improving%20the%20employee%20experience, March 23, 2023.
2. “Federal buildings board: Agencies can save billions by shedding ‘vastly underutilized’ office space,” Federal News Network website, https://federalnewsnetwork.com/facilities-construction/2024/07/federal-buildings-board-agencies-can-save-billions-by-shedding-vastly-underutilized-office-space/, July 16, 2024.
3. GAO-23-107060, FEDERAL REAL PROPERTY: Preliminary Results Show that Increased Telework and Longstanding Challenges Led to Underutilized Federal Buildings.
4. “U.S. Patent and Trademark Office to Shrink NoVA Footprint,” Commercial Observer website, https://commercialobserver.com/2022/11/u-s-patent-and-trademark-office-to-shrink-nova-footprint/#:~:text=The%20agency%20will%20vacate%20two%20of%20five%20buildings%20in%20Alexandria&text=Additionally%2C%20the%20three%20leases%2C%20which,the%20U.S.%20government%27s%20civilian%20landlord, November 8, 2022.
5. “DOJ Plans To Shrink Office Footprint By Over 150K SF With New Lease,” Bisnow website, https://www.bisnow.com/washington-dc/news/office/doj-plans-to-shrink-office-footprint-by-over-150k-sf-with-new-lease-118876, May 9, 2023.