Why DOGE Can Move So Fast on Government Leases

Talk about making a federal case out of things.

The sheer aggressiveness of Elon Musk’s Department of Government Efficiency (DOGE) in downsizing the federal government has marked a sea change in how the government manages its vast non-military real estate portfolio. The General Services Administration (GSA), which oversees the 350 million-plus-square-foot portfolio, has for over a decade been shedding excess space across the country. But DOGE has cranked up the heat. 

Within just two months, the non-governmental organization claims to have terminated 657 leases as of March 19, representing nearly 8 million square feet nationwide. 

Yet the speed, and opacity, with which DOGE conducts itself has led to confusion in the media, the public, and corners of the real estate industry itself. Observers are asking: How are DOGE and the GSA able to cut lease contracts so quickly? Exactly which contracts are they targeting? What is the goal for the agency in reshaping how the U.S. government uses physical office space in general? 

The answer lay in how federal leases are structured. They’re largely similar to standard private sector leases, though with some key differences. 

Aside from generally longer-term lengths and some specific security requirements, GSA leases are unique among most other government contracts in that they don’t contain “termination for convenience” clauses  — at least in the traditional sense. Those clauses allow the government to cancel a given contract for virtually any reason, but federal leases, which can last upward of 15 or more years before renewal, instead operate under two tiers: “firm term” and “soft term.”

Firm term is the initial, and typically longer, portion of a lease. The duration of the firm term is determined on a case-by-case basis. Unless the government can provide a valid reason for termination, such as the landlord failing to maintain the property, it cannot legally terminate a lease during the firm term without entitling the landlord to damages. 

Soft term begins once the firm term ends, effectively allowing the government to terminate for convenience without penalty, should it so choose. With written notice, it can vacate a soft term lease typically within 90 to 120 days. It’s these leases that are ripe for DOGE’s culling. 

“People shouldn’t be scared by what DOGE is doing,” Darrell Crate, CEO of owner and developer Easterly Government Properties, told Commercial Observer. “This is a quick realignment. But from everything that we’ve seen, for the mission critical services that the American taxpayer believes in, they seem to be moving in the right direction. … I think they’re taking what seems like a thoughtful, rough-cut approach. And, what I’ve seen is that maybe in places where they’ve made a mistake or cut a little too hard or in the wrong direction, I see them quickly reverse. But we haven’t seen anything that’s causing things to be broken or services to not be delivered.” 

Marcy Owens Test, a senior vice president at CBRE (CBRE) who heads the brokerage’s Federal Lessor Advisory Group, said that other real estate owners are still searching for clarity, however.

“A lot of landlords just want to understand what the process is, what the impact of any reorganization within the GSA will have on the workflow,” Owens Test said. “There’s a lot of companies that work with the GSA on a regular basis. I don’t know that I would say there’s worry [from the industry], it’s just wanting to understand … If there are any new processes, what are they? That’s what the predominance of our clients are focused on: ‘We’ll respond to the ways that GSA feels like they need to do their work, we just want to understand what’s the best way to do that.’”

It’s difficult to say for certain how many of the government’s roughly 7,000 leases — accounting for DOGE’s reported cuts — currently fall within the soft term, largely due to irregular record keeping and human error. These irregularities and errors, not to mention DOGE’s hacksaw approach, have landed the organization in hot water as reports emerge of it sending termination notices to unsuspecting landlords, only to later rescind them due to apparent lack of cancellation rights. DOGE by mid-March claimed to have cut nearly 800 leases, totaling about 10 million square feet, though it recently rescinded over 100 of those termination notices from its website without clear explanations.

The rescissions are reminiscent of the GSA’s list of 443 owned properties it posted to its website in early March, including its own Washington, D.C., headquarters, that it said it was considering selling or otherwise offloading. Yet the list was scrubbed from the agency’s website the following day, with a note saying that the list would be “republished in the near future” after “evaluating initial input.”

Yet, Owens Test said that approximately 3,500 to 3,600 leases will be in soft term by the end of this year, according to the GSA’s database. About 3,000 leases are set to expire before the end of Donald Trump’s second term in early 2029, per the database, meaning his administration has the ability to largely remake the government’s real estate portfolio within just a few short years. 

“I think anybody would say that they’d expect to see continued space reduction,” Owens Test said of the next few years. “[The GSA] themselves have communicated to the market an intention to get to a 50 percent reduction in the real estate space. That’ll happen through the leased and owned portfolio, and we continue to respond to how GSA thinks it’s best for them to execute that plan.”

Rescission of lease terminations has so far played out in two scenarios, said Gordon Griffin, a partner at law firm Holland & Knight specializing in GSA leasing. The first involves the government improperly canceling a firm term lease, and the second involves properly terminating a soft term lease. 

Regarding the former, there is established precedent that landlords can recoup legal fees incurred through lease administration or negotiations, Griffin said. He added that he and his colleagues have submitted requests to the GSA demanding it pay for costs associated with reviewing documents and otherwise proving that certain leases were terminated improperly. As for the latter, Griffin said the government’s rights to rescind a properly terminated lease were less clear — landlords therefore have a degree of leverage in negotiating a rescission or new lease contract if the government decides it wants to keep the lease, he said.

While a review of DOGE’s list of cut leases doesn’t necessarily indicate particular trends in terms of location or particular agencies with space on the chopping block, some patterns have emerged. More than half of the terminated leases were less than 5,000 square feet, while less than 30 leases on DOGE’s list are greater than 50,000 square feet. The respective agencies using many of those large spaces already had plans to vacate or consolidate their offices, Owens Test said. 

Yet, based on repeated comments from the Trump administration, including from Musk and Trump, Washington, D.C., has a major target on its back. Although DOGE has cut just 14 leases in the District so far, federal leases there account for about 25 percent of the national portfolio, according to Owens Test. The largest cut by far was the Bureau of Labor Statistics’ 845,389-square-foot space at 2 Massachusetts Avenue NW, also known as Postal Square. 

Although the District was once considered “recession proof” due to its interdependence with the federal government, D.C.’s reliance on the government has become more of a liability in the post-COVID era. Office vacancy in the District is still at 22.5 percent, driven in part by remote-work arrangements, according to a fourth-quarter CBRE market report. Average monthly office occupancy was still below 50 percent of pre-pandemic levels, according to a September report from the D.C. Policy Center, a nonpartisan think tank. 

A reduction of the government’s vast holdings could therefore ultimately be a spoonful of medicine for the District, eventually allowing the city to diversify its economy, said Yesim Sayin, D.C. Policy Center’s executive director. Even if the Trump Administration’s moves bring yet more pain first. 

“In some ways for the District of Columbia, in the long run, if this is done in coordination with the D.C. government … and allowing for some sort of preparation work, this could be good for the District, taking buildings that are not in the highest and best use … and turning them into something else, which may create more economic activity, more vibrancy, and meet some sort of demand,” Sayin said. “That’s a good thing. The issue is going to be the speed with which this happens, or the coordination that shapes the dispositions or lease terminations.”

A key to exactly how much pain D.C. — or any city with a significant government presence for that matter — feels as a result of the government’s portfolio reduction is how quickly it releases its spaces back into the market. 

Terminating cadres of soft term leases is one thing, but DOGE and GSA’s plans for actually vacating the offices is another, according to David Tarter, executive director for the Center for Real Estate Entrepreneurship at George Mason University and former mayor of Falls Church, Va. If the offices are let loose over time, it naturally provides local markets more time to absorb them — a crucial prospect for regions with low demand and a plethora of vacant space, such as D.C. or Northern Virginia. The latter had a vacancy rate even worse than the District’s at the end of 2024, at 23.6 percent, per CBRE. 

Yet, if the government ultimately decides to just pay off the outstanding balance on its terminated leases and release them all at once, the flood of yet more vacant space could have dire consequences, both Tarter and Sayin said. 

That’s particularly true of Virginia, where property taxes generate significant local tax revenue, Tarter said. About 80 percent of tax revenue in Northern Virginia’s Fairfax County, for example, comes from property taxes, according to its website. (Falls Church is an independent city within Fairfax County borders.)

“If you have a number of leases, and you just don’t renew them, then they would be spread back on the market and will be easier to absorb over time,” Tarter said. “When everything hits the market at the same time, it’s much more difficult to absorb and may have a much more dramatic impact on lease rates, pricing and other effects, too. For example, if office vacancies go up, rents go down, values of the properties will go down, and that impacts local governments that [rely on property taxes].”

Still, Easterly’s Crate isn’t panicking about DOGE’s cost-cutting efforts — quite the contrary. 

In February, the company posted a press release praising the organization’s efforts, and offering its support with specific recommendations on how to make the GSA’s portfolio more systematically efficient, rather than just smaller. Those recommendations include reforming the GSA’s prospectus process for larger leases, which can take years and often falls behind market realities; reforming The Automated Prospectus System (TAPS) in order for the government to better estimate repair and maintenance costs of owned assets; and minimizing upfront rental costs by adopting more commercial-style rent escalations, rather than flat rates. 

Easterly is well positioned to take advantage of DOGE’s efforts. Ninety-two of 100 properties owned by the real estate investment trust, comprising some 9.3 million square feet, are leased to the government — 95 percent of which are currently in firm term, Crate said. 

The REIT also focuses heavily on leasing mission critical space, such as labs and regional headquarters for law enforcement agencies like the Drug Enforcement Administration, the FBI, the Department of Defense and Immigration and Customs Enforcement (ICE). Most are unlikely to be cut anytime soon. 

While one would think that a tenant’s concerted effort to cut space would be bad for its landlords — and in some cases it certainly is — Crate said that Easterly is actually seeing an acceleration of new business from the government. Leasing property is simply less expensive than owning it. Easterly naturally views the expected cuts to GSA’s owned space as good for business, too — “tailwinds,” Crate said. Plus, DOGE is pushing projects that the company deems mission critical, according to Crate. Indeed, the REIT actually raised its investor guidance for 2025 at its most recent quarterly earnings report.

“What we’re seeing is them just moving faster,” Crate said. “The thing about DOGE is that they’re able to do two things at once — get the workforce moving, inventory their needs, and then make decisions about how they’re going to move forward. Generally, the government’s good at either walking or chewing gum, but they can’t walk and chew gum at the same time. And so [DOGE] makes it easier for them to be able to leverage the private sector.

“It’s all about incentives, and the problem is that the government has never had incentives to maximize an economic outcome.”

Nick Trombola can be reached at ntrombola@commercialobserver.com.