GSA’s aging inventory is not a new topic on this blog; a 2017 analysis revealed frequent lease extensions and a persistent decline in new construction as primary drivers. As the pandemic persists, with associated economic jitters and weak office space demand, it’s worth revisiting the trajectory of senescence in federal real property.
The graphs above illustrate the distribution of GSA’s current inventory. They show the number of GSA leased buildings in existence by the year they were built (or renovated) and, for a complementary view, the total rentable square feet (RSF) of same. We measure “GSA leased” in this instance as buildings that are ≥80% leased. The trends in both demonstrate that even today, in the year 2021, the bulk of the buildings currently leased by the General Services Administration are not products of development in the last decade but of the one before that—the 2000s.
These reinforcing depictions of the inventory underscore some new observations. Among them:
- 1,023 properties are currently i) ≥80% GSA leased, ii) ≥15,000 RSF in building size, and iii) originally constructed or substantially renovated between 1970 and 2020. These buildings total 94 MSF.
- Among these properties, 43% were built in the 2000s (2000-2009) and these same properties comprise 39% of the square footage among this set of properties that are currently leased by GSA.
- By comparison, the 2010s produced just 17% of GSA leased buildings by count and 20% by square footage.
- The vast majority of GSA tenancy in newer buildings resides in lease-construct (i.e., build-to-suit) projects. The trend is less pronounced when we look at the RSF of occupancy. Yet, looking deeper into the trend we can see that even most RSF is in lease-construct properties and where it isn’t, those buildings are mostly in the Washington, DC metro area where ample vacant building stock persists to accommodate federal demand.
New construction in GSA’s leased inventory remains slow, especially relative to those peak years in the 2000s. Normally we would expect this condition to correct itself eventually, but that may not happen any time soon. Emerging from pandemic shutdowns, many agencies are struggling to determine what their future workplace will look like. In some instances, we are already seeing office space downsizing as agencies embrace more telework and remote work strategies. In other cases, agencies are simply kicking the can, extending short-term in their current locations while determining their best path forward.
For investors, the message is clear: GSA leased buildings continue to get older, on average, and that trend could run a while longer. Though lease terms have been growing, improving the number of long-term leased investment opportunities, that trend may plateau as well. This is a truly unusual time, with the market in transition. But to where?