The Doge points to federal lease contracts and shakes the recovery of the commercial real estate sector

CNN
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For many companies – and possibly for the Federal Government of the United States – the era of remote work is coming to an end.

The employees of large companies such as JPMorgan Chase and Amazon are being summoned to return to the office five days a week. Under the administration of President Donald Trump, thousands of federal employees were asked to return to face -to -time work or present their resignations.

It may not be good news for workers who value flexibility, but it is helping to boost a rebound in the commercial real estate market.

The demand for office space increased almost 40% between 2022 and 2024, according to a report last month by VTS, a software Commercial real estate management. At this rhythm, VTS estimates that the national offices demand should be recovered at the levels prior to pandemic in the next four years.

However, the total recovery of the office market is not insured. The Government Efficiency Department (Doge), created by Trump last month and directed by billionaire Elon Musk, has asked the government agency responsible for federal real estate that significantly reduces the surface of government offices , which could flood the commercial real estate market with older and less desirable buildings.

Not long ago, some economists warned that the increase in remote work in the pandemic era could mark the beginning of a “urban catastrophe circle” in some cities. The term refers to a descending spiral if the workers who did not need to return to the office decided to leave the cities. With fewer residents, retail shops in these cities could close and crime could shoot, which would lead to an even greater exodus.

Until now, that destination seems to have been greatly avoided in most cities in the United States.

The commercial real estate sector ended 2024 with an encouraging note after the Federal Reserve reduced interest rates three times in the end of last year, said Charlie Dougherty, a senior economist from Wells Fargo. That occurred after the Central Bank raised the rates to the highest levels in decades in its struggle to reduce inflation discouraging indebtedness and cooling the economy.

Dougherty said the office buildings sector was benefiting that companies demanded that employees be present at the office.

“There are more and more workers who return to the office, which I think reflects the general weakness that has been seen in the labor market,” he said. “Workers no longer have the same negotiation power as before.”

Although the labor market has remained relatively strong, the growth of employment has slowed and hiring has decreased.

All cities measured by VTS experienced annual growth in offices demand, except Boston and Los Angeles. San Francisco, who saw his population of technological workers decrease and suffered several close -up -retail stores in the years after the pandemic, experienced a significant increase in demand, according to VTS.

New York City is where recovery has been stronger, with a demand for offices almost at levels prior to pandemic, according to VTS.

The rents of premium office spaces in New York are now in historical maximums, said Scott Homa, head of research of the Real Estate Sector of the Americas in JLL, a global real estate company and investments.

Class A buildings, which are new and high -end offices that are usually found in coveted neighborhoods, have been those who have experienced the greatest demand, said Homa. More frequently, employers look for new and attractive office spaces with additional comforts, such as gyms and food courts, to attract workers to the office.

But while most cities are largely avoiding a catastrophic cycle, approximately one fifth of the entire offices space is still vacant, according to TREPP, a commercial real estate data company.

Class B and C buildings of lower quality still face difficulties.

For example, the former Amerprise Financial Center in the center of Minneapolis, which was sold for US $ 200 million in 2016, was sold again last month for US $ 6.25 million: a price cut of 97% in less than one decade.

“The topic that has defined this recovery cycle has been the search for quality, which means that tenants want to go to the highest quality spaces and the most desirable submarkets,” said Homa.

An important user of office space is the federal government: it currently rents almost 13.9 million square meters of office space throughout the United States and pays more than US $ 5,000 million annually for rent, according to a recent TREPP report.

According to two sources familiar with the situation in the General Services Administration (GSA), the agency is expected lease throughout the country). Often, government lease contracts include a period of time called soft term, in which the government can pay a higher rent, but can choose to cancel its lease commitment at any time. The address of an effort to cancel 300 lease contracts per day was informed.

The Doge published in X that he already canceled dozens of leases in the last two weeks.

If federal lease contracts are terminated, it could mean that even more office buildings remain empty.

Darrell Crate, executive director of Easterly Government Properties, a company that has leased 100 buildings to the federal government through the GSA, said that the federal government would probably first be undoing hundreds of square meters of old buildings of class B and C.

“In the next five years there will be an increase in space offer and some of these buildings will be relocated to commercial or residential premises,” Crate said. “However, some will exert pressure on the office market in Washington DC.”

“We are likely to see pressure on the office market during the next five to ten years,” he added.

Fairy Gold, Tierney Sneed, Phil Mattingly, Katelyn Polantz and Rene Marsh, from CNN, contributed to this report.