DOJ To Relocate 2 Divisions Within D.C., Reducing Footprint By 30%
The Department of Justice is significantly reducing the size of one of its D.C. offices, an ominous sign for an office market still waiting to see how much the federal government will shrink its footprint following the pandemic.
The agency last quarter signed a 20-year, 331K SF lease to relocate an office to 555 Fourth St. NW from a nearby building, according to a CBRE market report and confirmed by a source familiar with the deal.
The deal represents a 30% reduction from its current 477K SF lease at 450 Fifth St. NW, according to a prospectus floated by the General Services Administration in 2020.
The GSA confirmed the details of the deal to Bisnow, adding that the new lease will commence in 2025.
Savills’ Mett Miller, Julie Rayfield and Todd Valentine represented the General Services Administration, the agency that administers the federal government's real estate footprint, in lease negotiations. J Street Cos. manages and leases the Fourth Street building on behalf of a family office.
The lease is for the DOJ's antitrust and civil divisions. The DOJ is headquartered on Pennsylvania Avenue NW, and it has a 1.4M SF presence at the Constitution Square complex in NoMa.
The Fifth Street building DOJ is vacating is owned by an affiliate of Clark Enterprises.
The GSA has been in the process of re-evaluating much of its office footprint, as more than half of its leases are set to expire in the next five years. That likely means further downsizing, as the federal government re-evaluates remote or hybrid schedules for much of its labor force.
While the new Department of Justice lease is the latest harbinger of the public sector's shrinking footprint, it is at least an example of a new lease done right, Darian Leblanc, a government leasing specialist and executive vice chair at Cushman & Wakefield, told Bisnow.
Leblanc said many landlords that lease to the GSA are in a functional state of holdover while agencies re-evaluate their footprint needs. He said the GSA's multiyear process of releasing its plans and securing a long-term lease for the DOJ has provided the agency's new and old landlords alike with certainty at a time when office leasing is in a state of flux, something he'd like to see happen more often when the federal government knows it has a lease expiring soon.
"More and more, that's what we're seeing in our sector is these really, really terrible options that are being placed on building owners," Leblanc said. "If [the GSA is] already in place, and you've gotten a lease that's going to expire in less than a year, and the government doesn't know what they want to do ... as an owner, what do you do? There is no good option."
The GSA, in coordination with the Office of Management & Budget and the Office of Personnel Management, first instructed agencies to develop return-to-office plans last summer. Since then, many real estate professionals have acknowledged the plans will lead to further downsizing.
But that downsizing hasn’t always occurred in an orderly fashion. Since the pandemic began, the GSA has struggled to implement a pre-pandemic strategy of signing long-term leases to reduce costs, issuing guidance in May 2021 allowing four-to-six-year lease terms to buy time for footprint considerations.
"This 4-6 year term will allow agencies time to finalize their long term space requirements, while providing GSA time to procure and build out the space," the memo read.
The GSA is actively searching for other ways to simplify its leasing process. In May, Public Buildings Service Commissioner Nina Albert revealed the agency would push for a policy change allowing it to pursue larger leases and capital improvements without prior congressional approval to make its operations more nimble.
UPDATE, July 6, 5:10 P.M. ET: This story has been updated with confirmation and additional details from the GSA.
