OMB directive on federal buildings occupancy provides opportunity agencies should seize

In August, the Office of Management and Budget issued a Management Procedures Memorandum on Building Occupancy Metrics (OMB MPM 2024-01). Consistent with the congressional directive in the FY2024 budget agreement, the OMB memorandum establishes a space utilization standard of 150 square feet per person and a minimum occupancy threshold of 60% for federal buildings. In contrast to previous OMB directives, this latest guidance looks beyond the narrow focus on space utilization metrics and provides agencies the flexibility to develop real estate plans that make good business sense. As expected, the OMB directive outlines additional reporting requirements over the next nine to 24 months. While some may see this latest OMB directive as yet another compliance exercise, agencies should recognize this as an opportunity to take a pro-active approach to evaluate their facility needs, advocate for their own interests, and develop a future real estate strategy that most effectively supports the agency mission.

The OMB memorandum on federal buildings occupancy

The federal effort to improve space utilization and reduce spending on real estate has been underway for more than a decade. In 2012, OMB issued its initial “Freeze the Footprint” guidance that was focused on restricting the growth of office and warehouse space to a fixed baseline amount. By 2015, OMB upped the ante by requiring agencies to “Reduce the Footprint.” This subsequent guidance required agencies to establish their own space utilization standards and set clear targets to reduce their inventory by prioritizing actions to consolidate, co-locate and dispose of underutilized property.

This latest directive from OMB is intended to instill a greater sense of discipline and structure as agencies plan space and facilities projects in the era of hybrid work. By establishing a maximum space standard of 150 square feet per person, the OMB guidance represents a sharp break from past practice that allowed agencies significant deference to establish their own space allocation guidelines. In addition, the OMB guidance also establishes a 60% utilization goal for federal facilities above 50,000 usable square footage.

But in contrast to previous OMB guidance, this latest memo reflects how government-wide policy on federal real estate has evolved over time to provide agencies with flexibility to exercise good judgment and common sense. Previous directives to freeze or reduce the footprint were often seen as a rigid or absolute standard where agencies found themselves contorting their space configurations to meet a prescribed space utilization standard, regardless of the cost or practical impact. During my time at the General Services Administration, I remember one example of a Midwest field office that had just reconfigured its space. While they affirmed how they met GSA’s internal standard of 136 square feet per person, they bemoaned how they no longer had space to perform the badging function for federal employees or for staff to make a private call. Although the intent of OMB’s guidance to Freeze the Footprint or Reduce the Footprint was always meant to serve as planning guidance instead of an absolute requirement, that is not how it was interpreted in the field. Lesson learned.

By contrast, this latest OMB memorandum explicitly encourages agencies to do what makes the most business sense. The OMB guidance recognizes how it may not be cost effective for agencies to reconfigure their space if they have already completed the design phase or if they are in a succeeding or superseding lease. For lease replacements and re-competitions, the guidance encourages agencies to consider the economic and budget viability of adopting a more aggressive space design standard relative to maintaining a larger footprint. Even for the 60% utilization target, the memo explicitly states how “agencies are not required to retrofit office space solely to meet this target,” and how decisions on office consolidations and disposals should provide a “net financial benefit to the taxpayer.”

Agencies should embrace the strategic opportunity of this moment. The OMB metrics are not rigid and absolute, but guidelines that should inform real estate planning and strategy development. For some agencies, that may mean reconfiguring existing space to meet a smaller space allocation. For other agencies, it may be more cost effective to maintain the current space allocation at the current location. And for others it may make sense to relocate to a new facility.  It all depends on the specifics of the agency space requirement and the current situation with its existing tenancy. The OMB directive sets the stage for agencies to understand their requirements, consider the alternatives to address these requirements, and to propose a real estate strategy that makes the most sense for the agency and the taxpayer.

The OMB directive also reflects an opportunity for the commercial real estate industry to engage in this process. Owners and investors in government real estate should recognize the potential impact of the analysis and evaluation that will be taking place over the next 24 months. Industry should be prepared to support tenant agencies through data collection, cost analyses, and other key activities to support the analytic process. In some cases, this may be the chance to demonstrate how the cost of the agency remaining in place is lower than the cost of moving to a different location with a smaller footprint. For other building owners, it may represent a new opportunity to secure a federal tenant in search of a more modern and efficient work environment.

The path forward

While the OMB guidance represents a positive step in the right direction, it nevertheless leaves us hanging. With a significant emphasis on agency reporting requirements over the next 24 months, the directive suggests that data sharing among federal agencies “is necessary to foster coordination among the various agencies toward identifying opportunities for the federal government to better manage property and assets.” The implication is that some form of government-wide portfolio strategy will emerge over time. However, there is no clear plan or timeline for the government to make decisions on the federal real estate portfolio.

It may take years for a government-wide portfolio strategy to emerge, and agencies who let others do the decision-making may not like the outcome of this process. Instead of waiting to be told what to do, or where to go, agencies should see this as an opportunity to chart their own course. This latest OMB memorandum provides significant latitude for agencies to evaluate their facility needs, advocate for their own interests, and develop a future real estate strategy that most effectively supports organizational mission. Agencies should capitalize on this opportunity.

Norman Dong is a partner at FD Stonewater and served as GSA commissioner of public buildings under the Obama Administration. Prior to joining GSA, he served as deputy comptroller at the Office of Management and Budget. 

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