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by Liliana Diaconu, CFA, Research Analyst, Real Estate Research
Within days of President Donald Trump’s second inauguration, billionaire Elon Musk emerged as a standout figure in his administration through the newly established Department of Government Efficiency (DOGE). Within weeks, Musk’s DOGE team had positioned people across the federal government, disrupting functions, gaining access to sensitive data, and executing cuts.[1] Mass layoffs have begun at multiple government agencies with the intention of drastically shrinking the federal workforce and real estate footprint. This analysis examines the impact on the U.S. office market by General Services Administration (GSA)-leased office space, with particular focus on Washington D.C.
Federal government downsizing is likely to have broader implications for the office real estate market in our opinion, with potential ripple effects, both nationwide and in Washington, DC. It is reported that DOGE has canceled or restructured 98 federal office leases covering more than two million square feet (MSF) of space across the country, concentrated in the Washington, DC area. [2] As of March 5th, 2025, the DOGE list of leases to be non-renewed included 748 lease terminations totaling 9,587,384 square feet and approximately $660 million in lease savings nationwide, per doge.gov.[3]
Table 1: GSA Leases with Termination Rights by Year and Share of U.S. Office Inventory
Source: GSA (General Services Administration) as of January 2025. Forecasts are based on assumptions, estimates, views and hypothetical models or analyses, which might prove inaccurate or incorrect.
As of January 2025, the U.S. federal government leased 131.8 million square feet of office space across the nation according to GSA data,[4] which accounted for 3.1% of the total office inventory.[5] Additionally, it is estimated that the federal government owns over 450 million square feet. Over the course of President Trump’s second term, about 50 million square feet or 37% of all GSA-leased space across more than 2,500 properties has the option to terminate by 2029.[6] In Table 1, we present a summary of GSA leases and the contractually available lease terminations, broken out per annum through 2044 and as percentage of the U.S. office inventory.
Next, we broke down the GSA’s leasing by Metropolitan Statistical Area (MSA) to quantify the impact of potential space cuts on different key markets. Unsurprisingly, as shown in Table 2 which summarizes the top ten MSAs by GSA office square footage and federal employment concentration, the Washington DC metro area, the hub of the U.S. federal government, has the largest concentration. Washington, DC outpaces the next largest MSA, New York, by over 30 million square feet.
The DC metro area, which includes the city’s Northern Virginia and Maryland suburbs, has 337 million square feet of office space according to CBRE Econometric Advisors (CBRE-EA).[7] When compared to the GSA office space within the Washington, DC metro of nearly 37 million square feet, federal government leases account for roughly 11% of the area’s office inventory. That excludes buildings that the government owns. Moreover, the federal job concentration is meaningful as well, accounting for 11% of metro’s total employment base, making the metro significantly more sensitive to government cuts relative to other markets.
Table 2: Top Ten MSAs by GSA Office Square Footage and Federal Employment Concentration
Source: GSA, CBRE-EA and DWS. As of January 2025.
In the next phase of our analysis, we made a few assumptions and calculated the impact on office vacancy rates for the nation and the Washington, DC metro.
According to CBRE-EA, the U.S. office vacancy rate is expected to improve over the next few years and reach 16.3% by 2029 from a high of 18.9% at the end of 2024. If 25% of expiring leases are not renewed, the national vacancy rate would reach 16.6% by 2029, 30 basis points above CBRE-EA’s forecast base case scenario. In a more extreme scenario, we would assume that 100% of the expiring leases are terminated. Then the U.S. vacancy impact would be even more meaningful. The national vacancy rate would end 2029 at 17.5%, or 120 basis points above the base case forecast. The impact could be intensified by funding cuts, as President Donald Trump and Musk push for major reductions in government contracts and grants. The Brookings Institution estimates that for every federal employee, there are two contractors.[8]
Further, we applied a similar methodology to the Washington, DC metro. The negative impact on vacancy is significantly greater given the metro’s higher concentration of federal government employment and leases. The baseline forecast is for vacancy rates to recover from a high of 19.1% at the end of 2024 to 16.9% by the end of 2029. But assuming that 25% of expiring government leases are canceled, the Washington, DC vacancy would reach 18.1% by 2029, 120 basis points above CBRE-EA’s base case forecast. In a more extreme case, where 100% of the expiring leases are canceled, the Washington, DC office vacancy rate would increase to a high of 21.7% by the end of 2029, 480 basis points above the base case forecast and more than 260 basis points above the current vacancy level. We would expect this scenario would impose an additional shock to already-weak Washington, DC market fundamentals.
In a nutshell, the real estate impact of DOGE actions appears to be significant. Nationally, the government downsizing could generate a decline in office demand. The federal government is a major lessee of office space, particularly in urban markets. Downsizing would lead to office space consolidations, higher vacancy rates, and downward pressure on rents. Fundamentals aside, increased uncertainty could put upward pressure on risk-premia for government-occupied buildings Some private landlords with high exposure to federal tenants may struggle with refinancing or loan defaults.
Washington, DC is uniquely vulnerable due to its heavy dependence on federal employment and office leases. The metro may also experience further challenges due to reduced demand from supporting businesses. Washington, DC has already experienced record-high office vacancies (~20%), driven by remote work and declining demand. If the federal government reduces its footprint, major Class A and Class B office buildings could see long-term vacancies persisting. Moreover, restaurants, retailers, hotels, and service businesses catering to government workers could see revenue declines. In a worst-case scenario, Washington, DC could undergo a transformation similar to post-pandemic San Francisco, where office vacancies soared and real estate values declined significantly.
Times Magazine. What DOGE Is Doing Across the Federal Government. February 2025.
CoStar. Trump administration moves to cut nearly 100 federal leases as real estate shake-up grows. February 2025.
DOGE.Gov. March 2025.
GSA. As of January 2025.
CBRE-EA. January 2025.
TREPP. DOGE Looks to Cut GSA-Leased Office Space: Quantifying the Impact on Key MSAs. January 2025.
CBRE-EA. January 2025
Brookings Institute. The true size of government is nearing a record high. October 2020.
This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Past performance is not indicative of future returns. Forecasts are not a reliable indica-tor of future performance. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect.
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R-070495-4 (7/25)
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