DOGE's Lease Termination Drive Poses New Risks To The Government's Landlords

While questions remain about how radically Elon Musk's Department of Government Efficiency can shrink the real estate footprint of the federal government, the unprecedented nature of the cost-cutting push has left landlords that rely on government rent payments in a precarious position.

In the first month of Donald Trump's presidency, executives with office landlords that hold federal leases have downplayed DOGE's impact, but analysts are sounding the alarm that those leases — long considered sure bets backed by the credit and good faith of the U.S. government — are now as risky as any other office lease in the private sector. 

The shift in perception of leases signed by the General Services Administration, the government's real estate arm, is “pretty much a 180,” Green Street head of office and life science research Dylan Burzinski said. 

The GSA has more than 7,500 leases across the U.S., according to the agency’s data. Of its 149.4M SF leased footprint, 52% of the space is either on a lease expiring by 2028 or can be terminated before then, according to an S&P Global analysis.

The commissioner of the Public Buildings Service within the GSA — essentially the head real estate executive in the federal government — said last month he hopes to cut the government's footprint by up to 50%. 

“I don’t think people understand the extent of the GSA leases that are out there,” said Michael McCarthy, a real estate finance lawyer with Morgan Lewis & Bockius. “A lot of landlords, a lot of lenders believe the GSA leases would go a lot longer than the firm term. You don’t see them as a five-year lease. You don’t see them as a 10-year lease. These are long, long term.”

DOGE revealed its first lease terminations this week, with the advisory group Trump has empowered to slash government spending claiming that it axed about 100 leases totaling 2.3M SF across the country. The department said the lease terminations would save the government a total of about $144.6M. 

The majority of those leases appeared to be deals that were expiring within the next year, and many of the terminations resulted in zero savings to the government, Bisnow previously reported. And in these early days, the leaders of publicly traded office owners have projected confidence that the leases they rely on for revenue won't be heavily impacted.

Nearly 17% of Office Properties Income Trust's rental revenue, or $72M, comes from the U.S. government, and OPI President Yael Duffy said on the REIT's Feb. 14 earnings call that $10.5M of those leases are on “soft term,” or can be canceled in whole or in part without penalty.

OPI already expects the Bureau of Safety and Environmental Enforcement to vacate 110K SF in the second quarter, cutting $856K of revenue, Duffy said. Nearly 20% of OPI’s leased square footage is set to expire by the end of 2025, according to its annual report.

“The balance of the leases and soft term are leased to what we believe, but cannot be certain, are mission-critical agencies with low risk of vacating, such as the Secret Service, Veterans Affairs, Social Security and the Department of Justice,” Duffy said.

“The essential nature of the work these agencies do and their need to physically occupy our properties has historically provided OPI with stable cash flows, although the Department of Government Efficiency efforts are broad-based and unpredictable.”

COPT Defense Properties draws nearly 36% of its rental revenue, $247M annually, from the U.S. government. Its average remaining term from those leases is less than four years, and “substantially all of our government leases are subject to early termination provisions,” according to its latest earnings report. 

The Maryland-based REIT focuses not on GSA leases but on “high-priority national defense activities of the U.S. government leased under the procurement authority of the mission,” CEO Steve Budorick said during a Feb. 7 earnings call. Many of its properties have specially designed spaces for top secret meetings, called sensitive compartmented information facilities, Green Street's Burzinski said.

“We've reviewed deeply the missions we support and the leases we have, and we do not see anything at risk,” Budorick said on the call. 

COPT still brings in $6.2M of its annual rents from GSA leases, but Budorick said those leases also include SCIF space.

But even agencies considered to be mission-critical may not be immune to DOGE cuts. 

Last week, Secretary of Defense Pete Hegseth said the Pentagon is cooperating with DOGE, including identifying and eliminating redundancies in the department. He pledged to cut 8% from its budget annually for the next five years.

“With DOGE, we are focusing as much as we can on headquarters and fat and top-line stuff that allows us to reinvest elsewhere,” Hegseth said during an address from the Pentagon, according to DOD News.

Before the Trump administration, federal government leases were seen almost as an annuity — a guaranteed, long-term income stream, a leasing broker who works on government deals said on the condition of anonymity.

“The business model of the certainty and security of a GSA lease, that's gone,” the broker said. “People are going to have to realize what was once sort of the annuity is no longer the annuity.”

Easterly Government Properties derives 96.4% of its revenue from the federal government's lease payments across more than 9M SF of properties. It issued a press release on Feb. 5 calling for reform to the government's real estate operations, offering recommendations directly to DOGE.

Among its suggestions: convert more of the GSA's real estate to leased space rather than owned space, incorporate rent escalations on new leases, and streamline rental prospectuses. It also noted that its CEO, Darrell Crate, used to be the president of the Massachusetts Republican Party.

“DOGE represents an exciting opportunity for the United States Government to address the inefficiencies that exist in the thicket of federal bureaucracy and meaningfully save taxpayers money,” Crate said in the release. “As the government undergoes this transformation, we stand aligned with DOGE’s efforts and are ready to leverage our expertise to help streamline operations, reduce costs, and ensure that taxpayer dollars are used efficiently.”

Investors are nevertheless skeptical. COPT’s stock is down 17.6% since the election. Easterly’s stock price is down nearly 20% since the election, and OPI, which raised doubts about its solvency in October, is down 13% in 2025.

Space that the government gives up, especially purpose-built buildings, poses the greatest risk for landlords. Given the overall office market malaise, having to retrofit spaces to lease them to the wider office market is an expensive prospect, said Vikram Malhotra, Mizuho Americas managing director and co-head of U.S. REIT analysis.

“I think the bigger risk is what ultimately happens upon lease expiration,” Burzinski said. “And does this building or does this tenant go dark?”

While the issue hasn’t popped up yet, McCarthy said he expects DOGE’s cuts to lead to distress. As departments trim spaces and exit leases, they could trigger covenants with building loans that could put the mortgages in default. 

“Now picture yourself as a lender and you made a loan where the GSA is the only tenant in the building or a significant tenant. What’s the ripple effect of that in your loan documents?” McCarthy said. “If there’s financing on that property and the GSA is a significant portion, that’s going to be a significant problem.”

Deep cuts to government spending will have a multiplier effect in the private sector, Malhotra said. Private contractors will have to reckon with deals that are canceled, reduced or left to expire, and that will ripple out into the broader economy as laid-off employees spend less, especially in the D.C. region, Malhotra said. 

“For every one government contractor that is impacted, the order of magnitude is one and a half to two times for the service providers,” Malhotra said. “There’s an impact for office and resi and retail.”

JBG Smith counts the federal government as its largest tenant, occupying 30% of its office portfolio and accounting for more than a quarter of its annual office revenue. It also has a sizable multifamily and retail portfolio, but all of its holdings are in Metropolitan Washington.

Its CEO, Matt Kelly, wrote last week in a letter to shareholders that it's possible Trump's demand that federal workers report to their offices five days a week balances out the deep cuts to the workforce and has a positive effect on the local economy.  

“It could also be that dramatic efforts to shrink government employment may offer nothing but more headwinds,” he wrote.