'Disappointing': Federal Government's Return-To-Office Push Has Been A Dud So Far

The “vast majority” of federal workers were expected to return to their offices this spring, but now that the calendar has turned to summer, it’s clear that the push from President Joe Biden hasn’t translated into action.

The government’s piecemeal approach to its return — which was delegated to each federal agency to decide its path back to the office — has resulted in vague plans and only a minor bump in occupancy, frustrating District leaders and the owners of its office buildings.

"I don’t think it’s happened,” said Norman Jemal, managing principal at Douglas Development Corp., one of the largest owners of D.C. commercial real estate. “I don’t know who exactly is back and who exactly is not back, but clearly overall it doesn’t seem like they're back. It’s disappointing … As a property owner, it’s very concerning."

The federal government employs nearly a quarter of the roughly 800,000 workers in Washington, D.C., so when Biden announced in March that it was “time for Americans to get back to work” in March — and the Office of Management and Budget said that workers across the federal government would do so by the end of April — it was cheered by D.C.'s civic and business leaders.

But when Axios D.C. published a report on June 15 outlining the status of major agencies’ return policies, the responses it received lacked much clarity as to what sort of push back to in-person work was actually happening.

The Department of Energy said that “offices have determined the appropriate level of staffing on-site and hybrid depending on mission requirements.” The Department of the Interior’s roughly 6,000 D.C.-area employees are “in the office full time, part-time (at least two days per pay period), or fully remote,” according to Axios, and the Securities and Exchange Commission said office work was voluntary.

In March, D.C. Deputy Mayor John Falcicchio said District officials had personally visited the White House to discuss the federal workforce's return-to-office plan, which Biden himself acknowledged was important to “fill our great downtowns again” during his State of the Union speech. But since then, details have been scarce.

"In terms of direct engagement, we haven't had much, because we really kind of get the same message from them — that people were coming back, but each agency was doing it their own way,” Falcicchio said. “So our ask remains the same, which is to have a uniform approach to bringing people back to the office, not just here in D.C., but nationally."

The week before the State of the Union, office occupancy in D.C. sat at 36.8% of pre-pandemic levels, per data from Kastle Systems. As of June 22, that number was 40.6%, showing that the April office mandate had minimal impact. Falcicchio said in March he hopes to eventually reach 75%.

As the second quarter wraps up without a top-down plan, the D.C. government wants more from the feds.

"I think the best thing the federal government can do is really set a higher standard for what they want, from the agencies and from the workforce," Falcicchio said. "I think if they give enough time for people to adjust to it, they will embrace it as well."

Falcicchio said the lack of clear decision is having a noticeable impact on District revenues. While revenue overall is up from pre-pandemic levels, thanks in part to capital gains, sales tax revenue is down by 27%.

The deputy mayor attributes that to a decline in retail sales in office-heavy submarkets, especially downtown and the central business district. The hospitality industry, too, is waiting for clear messaging from the federal government so private sector businesses can book conference and business travel with confidence, Falcicchio said.

The hands-off approach the Biden administration has taken with federal agencies has office owners like Jemal concerned that the neighborhoods with a heavy concentration of federal offices are bound to suffer.

"I think the ultimate tailwind for the city is for government workers to be coming back to the offices, and in no city would it be more important than in D.C. for the federal government to bring back employees," Jemal said.

Retail data from the DowntownDC business improvement district's 2021 State of Downtown report, released last week, paints a picture of a "glass half full," acting President and CEO Gerren Price said. But the recovery has been uneven.

The BID reports restaurant sales were above pre-pandemic levels last winter, but shopping and other retail still lagged behind. The BID still has about 800K SF of vacant retail space today, double the vacancy in the core of D.C. at the end of 2019.

Price said greater clarity from the federal government, considering the GSA's "commitment to the city and to downtown in particular is certainly clear," could help close the gap toward a full recovery.

"The nightlife, the culture, the dining, it's largely back, right? It feels like it's fully returned," Price said. "I think what we're still lacking is the office part of it."

Downtown actually has fewer office workers coming to their desks than the District as a whole — 40% in the BID compared to 42% overall, per Kastle occupancy data from early June cited in the BID’s report. 

That means the story in other neighborhoods, like NoMa and Capitol Riverfront, has been somewhat brighter. There, city planners and local BIDs have spent years developing a more even mix of office, residential and commercial spaces, which has ensured a diverse array of pedestrians fill the streets and generate economic activity, NoMa BID President and CEO Maura Brophy said. 

NoMa does still have federal office buildings — the Securities and Exchange Commission, Bureau of Alcohol, Tobacco and Firearms and Department of Justice all have large presences within the BID’s borders. But many of those offices are newer, and Brophy said the lack of government plan is tempered by other private sector tenants as well.

“It does have an impact,” Brophy said. “We do have a fairly large share of federal government office space in the neighborhood, so the decisions at the federal level will affect the level of returns that we see, but that said, just as we have a healthy mix of uses, we also have a healthy mix of public sector and private sector office tenants.”

The knock-on effects of personnel uncertainty may continue for some time. The federal government is responsible for roughly a third of all office space in D.C., and more than half of its leases are scheduled to expire by the end of 2025.

But the fact that large swathes of the federal workforce still aren't spending much time in the office casts doubt on how much corresponding space agencies will require. That means the GSA will need to make a lot of tricky interim decisions about space, including lease extensions, said Darian LeBlanc, a government leasing specialist and executive vice chair at Cushman & Wakefield.

“We're in this period of kick the can, where we’ve got millions upon millions of square feet that are going to be rolling in the National Capital Region,” Leblanc said. “Some leases are already in functional holdover and they're gonna stay there, because nobody can make any long-term decisions.”

Jon Banister contributed reporting for this article.