In Texas, the Department of Government Efficiencies (DOGE) is beginning to deliver on its commitment to reduce the state’s office footprint, following through on plans to cancel 32 leases. However, DOGE had prematurely reported all 32 leases as terminated back in March. As of now, only 21 have been officially cancelled, accounting for approximately 97,000 sq ft of office space.
15109 Heathrow Forest Pkwy Ste 200, Houston
The largest lease termination to date was of a 23,000 sq ft office in Houston, previously occupied by the Office of Natural Resources and Revenue (NRR). The space was located within a 64,000 sq ft commercial building owned by a Laredo-based limited liability company. Despite the exit, NRR continues to operate in Texas through its remaining lease at 4050 Alpha Road Farms in Farmers Branch, a property owned by the federal government.
1999 Bryan Street, Dallas
The next largest lease termination involved a 15,000 sq ft Federal Trade Commission (FTC) office located at 1999 Bryan St in Dallas, situated within a prominent 734,000 sq ft privately owned office tower. This regional office, which provides oversight and services across Texas, New Mexico, Oklahoma, Arkansas and Louisiana, has yet to announce a new location to replace the vacated space. The move marks a significant shift in the FTC’s regional footprint, through details about future plans remain pending.
106 North Stanton Street, El Paso
The third-largest lease termination involves the Equal Employment Opportunity Commission’s (EEOC) El Paso office, located at 106 Nort Stanton Street in a building owned by the El Paso Electric Company. This office serves as a key regional hub for the agency’s enforcement of workplace discrimination laws in the area.
In addition to the El Paso location, the EEOC maintains two other offices in Texas, situated in Dallas and San Antonio, both of which are houses in federally owned buildings. The status of these remaining offices remains unchanged amid the recent lease cancellations.
Market changes
These recent lease terminations, while notable in size and scope, represent just a portion of a larger shift occurring within federal office space management in Texas. The General Services Administration (GSA), the federal agency responsible for acquiring and managing office space for government entities, is also actively listing properties for sale. Although the federal government continues to retain its most desirable assets, it is increasingly divesting from older, less competitive Class B and C office buildings across Texas.
Despite these efforts, Texas ranks12th nationally in federal office space termination, meaning the roughly 97,000 sq ft in now vacated is only a small fraction of the total available office space in the state.
Nationwide Impact
During, and following the Covid-19 pandemic, many private organizations significantly reduced their office space by adopting full remote or hybrid work models. This shift has triggered substantial changes in the commercial real estate market. As the nation’s largest employer, the federal government is now following suit by downsizing its office footprint in response to the increased availability of office space.
This trend represents a major paradigm shift for investors and commercial landlords, as federal leases have traditionally been considered some of the most stable and long-term commitments in the market. Compounding the challenge, many of the buildings vacated by federal agencies are poorly situated for conversion to residential use, limited alternative options for landlords.
As a result, this adjustment is expected to ripple through local markets across all tiers of office space, leaving both institutional and independent landlords with few viable solutions.
Effect on Local Markets
According to McKinsey’s 2023 study, demand for office space is already declining, meaning that any increase in local supply is likely to further disrupt local markets.
While the federal government’s reduction in office space may not trigger widespread national speculation, the sheer volume of lease cancellations could have significant effects on local and regional markets across the country.
Regions with the largest federal office space reductions, such as Washington, D.C. (1.45 million sq ft), Virginia (300,000 sq ft), Ohio (300,000 sq ft) and Maryland (300,000 sq ft) are expected to experience the greatest impact. Meanwhile, DOGE continues to cancel leases nationwide, potentially accelerating declines in office markets as federal tenants withdraw.
