OMB says agencies will shed ‘considerable’ amount of office space in coming years

The Biden administration says federal agencies are getting rid of office space they no longer need, and will shed millions of square feet in the coming years, now that many federal employees are on a hybrid schedule of in-office and work-from-home days.

The Office of Management and Budget, in a sweeping report released earlier this month, said telework-eligible federal employees are working in their offices about 60% of the time.

That hybrid schedule allows agencies to reevaluate their office space needs, and shed excess leased and government-owned real estate.

“While agencies reach more durable, long-term decisions about their telework and work environment posture, they are also considering the impacts of these changes on their real property portfolios,” OMB wrote. “Agencies have undertaken considerable work to dispose of unneeded property, reduce costs, and improve overall utilization of real estate.”

OMB requested the 24 largest federal agencies provide an update on efforts to reduce their office space portfolio, and provide more details on what steps it’s taking to make better use of their buildings.

In 2023, federal building utilization rates in the Washington, D.C. metro area remained about 30% lower than pre-pandemic rates, by some estimates.

Agencies are telling OMB they’ve already shed hundreds of thousands of square feet of office space, and are planning to shed millions more square feet of space in the coming years.

“It is OMB’s expectation that all agencies will arrive at intentional, competitive, and durable work environments that set agencies up for success in both the short and long-term, and that they appropriately manage their real property portfolio to support those decisions,” the report states.

OMB is also developing occupancy metrics that will require agencies to calculate their average occupancy rates for their buildings. Lawmakers have demanded this sort of data from agencies, and grown frustrated that this data isn’t more widely available.

HUD plans to give up 60% of its office space

Agencies are proposing different timelines for real estate disposal, and vary on how much office space they’re willing to give up.

The Department of Housing and Urban Development, as an extreme example, plans to eliminate up to 60% of its total office space footprint by 2038.

HUD plans to reduce space for its field office outside the Beltway, and consolidate four D.C. satellite offices into its downtown headquarters building.

“The reductions will achieve a more efficient utilization rate and reduce real estate spending, allowing us to redeploy funds to other higher impact needs,” the report states.

HUD occupies more than 4 million total square feet of space — which covers 80 leased buildings across the country, and four headquarters buildings.

The Energy Department, meanwhile, outlined plans to offload more office building space than any other agency. The department told OMB it plans to dispose of 3 million square feet of building space through 2027.

The Defense Department says its Washington Headquarters Services ended leases on 561,000 square feet of space within the past five years, and returned 275,000 square feet of space to the federal government’s landlord, the General Services Administration, for use by other tenants.

GSA said it reduced the federal footprint by more than 2 million square feet over the past 10 years, avoiding more than $300 million in operating and maintenance costs.

“In 2024 and in future years, GSA’s internal real estate portfolio will focus on right-sizing its workplaces,” GSA told OMB. The agency plans to vacate leased space and “transform, restack, and/or backfill owned space” in at least six regional office buildings and its D.C. headquarters.

The Government Accountability Office found last summer that all agency headquarters buildings in the Washington, D.C. area had excess space, including 17 that had an average building utilization of just 25%. 

OMB wrote in the report that agencies don’t currently collect data to calculate average office space utilization rates, but OMB plans to develop occupancy metrics that will require agencies to calculate their annual average occupancy for their buildings in the “near term.”

Office space officially designated as underutilized accounts for more than 23 million square feet of space in GSA’s Federal Real Property Portfolio. That underutilized space accounts for more than $69 million in annual operation and maintenance costs.

“Many agencies recognized that they had more office space than needed prior to the pandemic and face continued challenges in rightsizing their real property portfolio, including specifically lack of funding from Congress to both reconfigure and consolidate office space to support mission needs,” the report states.

The average age of GSA-owned buildings is more than 50 years old. OMB notes that “older buildings are not efficient or optimally configured for modern work and often require significant modification.”

Current and former officials who oversaw the federal government’s sprawling real estate portfolio say said federal buildings remained underutilized across multiple administrations — but that the COVID-19 pandemic made the issue too obvious to ignore.

However, OMB notes that some agencies may have underutilized space because of a shrinking workforce, and may not have the funding to move into smaller buildings.

“It is important to note that ‘underutilized’ office space is often a required asset in a specific location by one or more agencies,” the report states. “The cost of maintaining an owned asset that has become underutilized due to staff reduction, for example, may be a more cost-effective solution than constructing a smaller building that would be fully utilized or leasing commercial office space.”

GSA is also asking Congress to get full access to the Federal Buildings Fund, where it keeps rent payments from tenant agencies. Lawmakers have diverted about $1 billion from the fund annually for more than a decade to cover other costs.

Lawmakers skimmed more than $13 billion from the fund over the past decade, which has delayed necessary repairs and limited GSA’s ability to consolidate office space for tenant agencies.

GSA is asking Congress for a $425 million “optimization” fund in next year’s budget. The funding would help agencies move out of underutilized office space.

The House and Senate versions of the fiscal 2025 spending package don’t include the Biden administration’s request for a federal building optimization fund at GSA.

However, both versions, however, included language that requires GSA to come up with recommendations for how to reduce lease and owned federal office space with a less than 60% utilization rate.

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