Agencies' requirements for leased office space in the Washington area remains strong, despite an Obama administration directive to downsize. The Justice Department and General Services Administration soon will be moving into the new Constitution Square by developer StonebridgeCarras, above, in what are the largest Washington-area leases in years. (Sheila Vemmer / Staff)
Agencies are adding millions of square feet of office space in the Washington area alone to meet growing work-force demands, potentially putting them at odds with White House demands to cut space.
The number of full-time employees added to the federal payroll is projected to increase by about 26,000 in the Washington region — and 200,000 nationwide — during President Obama's first term, said Stephen Fuller, who has analyzed federal employment trends as director of George Mason University's Center for Regional Analysis.
"These numbers may not seem big to you, but they are actually big from a historic context," Fuller told hundreds of real estate professionals last week at a forum hosted by Washington-based Bisnow, a business publication.
The projected work-force growth — the largest boom in the Washington region since the 1970s — largely is in response to increased regulation of the financial sector, health care reform and national security needs.
To house those additional employees, agencies are adding lots of office space, despite a June 10 Obama administration directive to shed $3 billion in excess properties and facilities by October 2012. Those cuts are in addition to $5 billion the Pentagon expects to save after disposing of or otherwise consolidating properties through the Base Realignment and Closure process.
Balancing the need for additional space with the requirement to reduce overall inventory will require a delicate balancing act for agencies such as the General Services Administration, which owns or manages 9,600 buildings housing more than 1 million federal employees nationwide.
Bob Peck, commissioner of GSA's Public Buildings Service, said the agency has a three-pronged approach to meeting Obama's goal:
• First, dispose of vacant or otherwise underused properties. Agencies are holding onto $83 billion worth of unused property that could be sold at auction or otherwise disposed of, according to 2009 figures from the Office of Management and Budget.
"We're going to push really hard on some federal agencies which have been reluctant to give up properties that they don't need," Peck said. "A lot of agencies have a hope, a dream, that someday that piece of land they've been holding on to will actually get an appropriation, and [they] will get to build a facility that they were dreaming of. Now we're going to tell them time's up."
• Second, GSA will be asking agencies seeking new leases or new construction to reduce their square-footage requests and increase their reliance on teleworking or other alternative workplace strategies to reduce their space needs.
"We're going to be looking very hard when an agency comes in and says, ‘I need 200,000 square feet.' GSA is going to be taking a more aggressive role, as will the Office of Management and Budget, in saying, ‘Can you really not do with 180 [thousand], 170 [thousand]?' " Peck said.
• A third option would be canceling leases before they expire and consolidating employees in smaller spaces, although Peck said those would be "a last resort." Obama raised the specter of such an approach in his memo, in which he directed agencies to consider "eliminating lease arrangements that are not cost effective" as one way to reduce unneeded space.
"I don't want to say never — never say never. But if that is a concern, I want to disabuse you of the notion that that's the first thing we're looking to do or even the second thing we're looking to do," Peck said.
Top real estate developers in the Washington area expressed confidence that agencies will continue to require new office space, despite Obama's mandate.
The biggest impact from the Obama memo likely will come from agencies scaling back their requests for leased space, said Bill Hard, executive vice president of LCOR, a real estate investment and development company based in Berwyn, Pa.
"From our perspective, I don't see a great change other than seeing the requests for size shrinking," Hard said.
Efforts to get rid of space that's only partially occupied could result in additional requests for new space, since agencies will need to consolidate employees from multiple underused locations, said Douglas Firstenberg, principal at StonebridgeCarras, a Washington-based real estate and development firm.
"The requirements may shrink, but there will be opportunities for consolidating into newer space," Firstenberg said.
The hiring boom actually predates the Obama administration, Fuller said.
"Federal employment began to grow here on a month-over-year basis in November of '07, with still over a year to go in the Bush 2 administration, which coincides with the beginning of the recession," Fuller said. "The federal government, not knowing that the recession was actually beginning at that point, was already beginning to hire more workers to deal with some of the problems in the financial markets."
More of the new workers are being located close to agency headquarters, which will increase demands for space in the nation's capital. Nearly 13 percent of all federal civilian jobs are in the Washington area today, the highest percentage ever, Fuller said.
Some of GSA's largest customer agencies — including the Defense, State and Justice departments — are adding more than 8,100 employees in the Washington area during the next few years, Peck said. That doesn't include growing agencies that lease their own space, including the Federal Reserve and the Securities and Exchange Commission.
Much of the new space being acquired by federal agencies is in leased commercial buildings, which are faster to turn around than new federal buildings.
GSA has signed leases or issued solicitations for more than 3 million square feet of space in the Washington region this year alone. Some of the new leased space replaces existing leased facilities, although agencies are requesting additional space to meet new work-force demands, Peck said.
"We are going to see some expansion," he said.