NoVa could feel pain if Trump cuts federal office space

Northern Virginia is sure to weather aftershocks if the Trump administration moves forward with plans to shutter half of the properties owned and leased by the federal government.

“We’ll see some strong reverberations,” said David Tarter, executive director for the Center for Real Estate Entrepreneurship and the master’s in real estate development program at George Mason University. “That’s a lot of office space coming back on the market.”

Michael Peters, commissioner of the U.S. General Services Administration’s Public Buildings Service, publicly stated last week that the agency, which builds and acquires office space for other federal agencies, plans to cut the square footage in the agency’s portfolio by 50%. Additionally, he said the GSA plans to cut the amount of office space it uses (along with cutting the number of employees at the agency).

Peters, who was appointed to his new role by President Donald Trump at the end of January, spoke Jan. 28 during a meeting of the Public Buildings Reform Board, which has a mission to make recommendations about whether federal properties should be sold or redeveloped. The Federal News Network reported that at the meeting Peters said the agency probably won’t be able to shed that much of the federal government’s office space in six months, but he added, “we’re going to try to do this as rapidly as we can.”

It’s part of an overall effort to shrink the federal government’s footprint, as Trump and world’s wealthiest person Elon Musk, head of the Department of Government Efficiency (DOGE) and owner of X, SpaceX and Tesla, aim to persuade 5% to 10% of federal employees to resign or face layoffs in the near future.

The GSA did not respond to a request for comment for this story.

It’s too soon to have a detailed analysis of what this plan could mean for Northern Virginia’s office market, according to Marcy Owens Test, the Washington, D.C.-based head of the Federal Lessor Advisory Group for CBRE, a Texas-based global commercial real estate services and investment company.

“It’s really an evolving situation,” she said. “It seems like things are happening really, really fast, but it will take some time for all of this to get clear.”

The GSA’s National Capital Region — which includes the cities of Alexandria and Falls Church, and Arlington, Fairfax, Loudoun and Prince William counties in Virginia, as well as Washington and parts of Maryland — has a portfolio of about 44 million square feet of leased space.

The Virginia section of the National Capital Region has 16 million square feet of leased office space and 185 leases, according to CBRE data. Leases for just over 5 million square feet expire over the next four years and about 500,000 square feet expires in the next four years if termination options are executed, Test explained.

As far as federally owned property, the Virginia section of the GSA’s National Capital Region has six buildings, according to Test.

“This is just GSA portfolio,” she stresses. “It doesn’t have anything to do with the Pentagon.”

Playing defense

Having a heavy occupation of federal agencies connected to defense is one thing that Northern Virginia has going for it, according to Steven Teitelbaum, faculty coordinator for real estate specialization at the Kogod School of Business at American University in Washington, D.C.

Northern Virginia has less to worry about since more of its office spaces are occupied by defense-oriented federal agencies than Maryland or Washington.

“I’m just guessing that, given the emphasis of the current administration on defense, that they’re not going to be terminating defense leases,” he said.

Teitelbaum, previously a commercial real estate lawyer, stressed that the government is locked into office space leases “pretty much the same as a private sector tenant.”

Even so, he also acknowledged that President Trump and some of his associates have shown “that they’re willing to bend the rules or break the rules and see if anybody tries to prevent them from doing that.”

“They may just say, ‘We’re out of here. Come after me.’ Right?” Teitelbaum said.

And that could have broader ramifications. “That really turns a lot of things on its head and sends a certain message to the market,” he said.

Ryan Touhill, director of Arlington Economic Development, said it’s too early to worry about the federal government downsizing its portfolio of leased office space.

“We have a strategic plan for economic growth that we are focused on, and we recognize the importance of the federal government, but …things are way too early to make any kind of shifts in our strategy or policy,” he said.

If the federal government does ultimately decide not to extend leases of office space in Arlington County, “we’ll have to deal with that if that comes,” Touhill said.

Circumstances vary

Still recovering from the pandemic when massive numbers of employees began working from home, Northern Virginia had an office vacancy rate of 17.8% in the final quarter of 2024, according to data provided by Virginia Realtors. A high vacancy rate is typically considered anything about 10%.

The hit could be more or less painful depending on how quickly the GSA sheds its inventory, according to GMU’s Tarter, who’s also a former commercial real estate lawyer.

If the federal government sets a policy to not renew office building leases as they expire, he explained, vacancies will be spread out over a period of years, giving the market more time to absorb the available space.

If the federal government decides, on the other hand, to pay the remaining owed rent on a lease and gets out of dodge, Tarter said. “I think it’ll have a much more significant impact because it’s sort of a flood of office space hitting the market all at once.”

Overall office rent in Northern Virginia was $34.35 per square foot in the fourth quarter of 2024, according to data provided by Virginia Realtors.

If the federal government sheds 50% of its office portfolio in Northern Virginia, Tarter speculated, it will keep rent prices where they are, or “rents could go down beyond what they are now.”

An increase in office vacancies, according to Tarter, generally can lead to lighter coffers for localities, who collect property taxes from the owners of office buildings.

“When commercial buildings are unoccupied, or they’re mostly vacant, they’re not worth as much, so that means that local governments will get less [in] property taxes,” he said.