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Threats of budget cuts stifle federal leasing activity

Nov. 22, 2011 - 04:53PM   |  
By ANDY MEDICI   |   Comments
Budget cuts and congressional gridlock will cause federal agencies to sign fewer office leases in 2012, according to a report by Jones Lang LaSalle Americas Inc., a leasing and property management firm.
Budget cuts and congressional gridlock will cause federal agencies to sign fewer office leases in 2012, according to a report by Jones Lang LaSalle Americas Inc., a leasing and property management firm. (Scott Olson / Getty Images)

Federal agencies will hold off on signing new leases in 2012 as congressional gridlock continues, a report released Monday predicts.

The inability of Congress to pass most agency budgets and the specter of future cuts will curtail leasing activity, according to the report by Jones Lang LaSalle Americas Inc., a leasing and property management firm. "Without clear guidance on agency budgets and an uncertain future in terms of government leadership federal tenants are likely to maintain their ‘wait-and-see' approach to real estate decisions in 2012 and likely beyond," the report said.

Joe Brennan, head of the Government Investor Services Group at the firm, said most leasing activity will be limited to renewals and consolidations of existing leases.

"Today we have no direction. What we have is gridlock," Brennan said in an interview.

The General Services Administration which handles leasing for most agencies is required by law to submit prospective leases valued at more than $2.66 million to Congress for approval, which means larger leases may not be approved, according to Brennan.

He said he expects Congress to attempt to repeal the $1.2 trillion of automatic cuts to agency budgets that are slated to take effect beginning in 2013. Those budget cuts are being triggered by the congressional supercommittee's failure to come up with a deficit reduction plan.

GSA is also refocusing its efforts on cutting costs as money for new projects and renovations continues to shrink, according to Brennan.

Martha Johnson, GSA administrator, said at an Oct. 31 conference that the agency was looking to create "deep operational efficiencies." She said there would be no new construction if the budget outlook for fiscal 2012 didn't improve.

GSA also announced earlier this month it is abandoning indefinitely further renovations and a planned expansion of its headquarters in Washington. Employees who have been working in temporary leased offices during the renovation will move back to the headquarters building by February 2013 18 months ahead of the original move-in date. Ending the three current leases early is expected to save $28 million annually.

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