Six Months Into Trump 2.0, D.C. Is Still Finding Its Footing

What a long, strange trip it’s been for commercial real estate in Washington, D.C., over the past seven months. 

The sheer deluge of news coming out of the District lately has been headspinning: the stack of executive orders inked by President Donald Trump regarding federal office use; the steady flow of agency defunding, dismantling or relocations outside of D.C.; Congress relegating the District’s budget to the previous fiscal year; Elon Musk’s barrage of federal cuts throughout the spring via his Department of Government Efficiency (DOGE); and, of course, frequent reports of D.C. properties facing financial troubles and/or selling on the cheap after suffering serious losses in value.

That’s without mentioning the plethora of budget challenges, public safety woes and stadium development fights that existed well before Trump retook office.

Yet, despite the odds (and thinkpieces portending the city’s demise), there’s still more to the nation’s capital than meets the eye. Average office vacancy is very high, to be sure, yet vacancy in the city’s highest-quality spaces is simultaneously at a near-record low, according to a recent CBRE market report. Trump and Musk’s scorched earth tactics in the name of government efficiency grabbed many eyeballs earlier this year, but the campaign’s results are not as apocalyptic as many had predicted. 

And a deal to bring the Washington Commanders football team back to the District, currently on the one yard line, comes with a landmark plan to revitalize a 190-acre swath of Southwest D.C. while adding rocket fuel to the city’s investment activity. 

“There’s definitely even more real need to think about what organic growth looks like in D.C.,” said Yesim Sayin, executive director of the D.C. Policy Center, a think tank. “D.C. has always grown by acquisition — we bring in another [sports] team, we bring any company that wants to be close to the federal government, and a lot of that was built on the shoulders of the federal government and federal government employment. If you think about our calling card up until 2020, our calling card was ‘government town.’ So, if you take out those words from our calling card, what are we? I don’t know … this is something I think about all the time.”

‘Zombie’ buildings

D.C.’s office market has unquestionably been beaten up. Office vacancy hit 22.6 percent in the second quarter of this year, per CBRE, reaching a grim record. Slow federal leasing in the Trump/Musk era largely drove the occupancy loss, and major agencies opting to leave the District for greener pastures further constricts future renewal activity.

If one were to digest those facts alone, it could appear as though the District was at death’s door. Look a little deeper, however, and one would find two aspects of the D.C. market that help reframe the situation: the success of trophy and Class A space, and the anchor of obsolete, “zombie” offices draped across the city’s neck like an albatross.

The latter begets the former, and is largely a result of the pandemic and not the Trump administration. As interest rates rose in the early 2020s, office use trends curdled, and office values plummeted, many landlords within the District were unable or unwilling to fund capital improvements to their buildings. The total amount of debt tied to these buildings is unclear, but the effects are stark: Of the city’s 80 large office blocks — defined as 50,000 square feet or more — currently on the market, more than 30 are unable to ink new lease deals because of the financial state of the properties, according to CBRE. That amounts to some 5.6 million square feet of zombie space within spitting distance of near fully occupied offices.

“We’re still in the very early stages [in regard to] the amount of property-level debt that is challenged right now,” Brad Wilner, executive vice president and tenant representative for CBRE’s D.C. office. “We haven’t cycled through all of those bad loans yet, so that’s going to take time. But I think we’re starting to see that lenders are willing to take the loss and dispose of assets, and that’s good for the overall market. Once we have those trades and you have fresh capital coming in at lower basis and lower property-level debt, then you have the opportunity to invest and actually take a building that couldn’t transact, and all of a sudden they start doing leases and reducing the amount of vacancy they have.”

The federal government is poised to largely stay within the District (despite the political rhetoric), which inherently draws private sector office demand. Yet many of those companies, especially those with cash to spend, are simply uninterested in signing leases for poorly maintained space. Hence the flight to quality — trophy office vacancy dropped to 11.5 percent in the second quarter of this year, per CBRE, a near-record low. Deals from law firms are particularly visible, accounting for 35 percent of all leasing activity in the second quarter. Relocations likewise accounted for two-thirds of all D.C. law firm leasing activity since 2024. 

“Government’s not going anywhere, and there’ll be users of office space that want to be in close proximity,” Wilner said. “The challenge is going to be finding the appropriate space and creating this high-end segment of the market where the demand feels insatiable. People are willing to pay for nice product. It’s a matter of being able to deliver nice product.”

Many of the vast federal offices, especially federally-owned properties, are likewise considered zombie spaces. First, office occupancy is notoriously (if anecdotally) abysmal, even after Trump’s return-to-office orders from earlier this year. Hard data on federal office occupancy is few and far between, but a report from the Public Buildings Reform Board last year found that agencies were using just 12 percent of their office capacity on average. Average peak day office occupancy in the D.C. area in general in early August was about 60 percent, according to the latest weekly report by proptech platform Kastle Systems. 

Second, many of these buildings, such as the Department of Housing and Urban Development’s 700,000-square-foot headquarters in Southwest D.C., have built up hundreds of millions of dollars in deferred maintenance costs. Health and structural hazards, leaks, and utility failures at these buildings, some of which are nearing centenarian status, are common. 

“Some of these buildings are a monument to a time,” said Darrell Crate, CEO of owner Easterly Government Properties. “There are historically significant architectural buildings with features, you know, that can speak to modernity. There’s also a bunch of buildings that really are just a pile of rocks, and we should photograph them meticulously and then move them out of the way.

“The thing that’s really interesting to me is that when I talk to people about this, there’s no consistent answer,” Crate added. “So there’s lots of good ideas. The government just needs to economically facilitate it, helping with demolition, whatever, something that moves it along. But there are great ideas that are surrounding these spaces and, as you’ve seen in many cities, [that kind of revitalization] works.”

With that context in mind, there’s little wonder why department heads like HUD Secretary Scott Turner are vacating their old digs (Turner’s personal feelings on the former HUD headquarters aside). The sheer amount of federal underutilization also helped propel Elon Musk’s DOGE-sized wrecking ball earlier this year, arguably with ample justification. But, as the dust settles around DOGE’s activity, not to mention Musk and Trump’s public, if predictable, falling out, its long-term results appear more muted than either man had intended.

Such cuts, wow, much excite

DOGE’s goals and tactics seized countless headlines throughout the first chunk of 2025, not least of which from this publication. Musk’s influence, either through DOGE’s activity or via his sway with Trump, was certainly visceral within the DMV, as tens of thousands of federal workers were laid off, thousands more federal contracts and grants were cut, and entire agencies, such as the U.S. Agency for International Development (USAID), were dismantled.

Still, DOGE’s overall legacy, particularly in regard to D.C. real estate, is more complicated. The $199 billion that the non-governmental agency currently claims to have saved taxpayers, first of all, is less than one-tenth of the $2 trillion that Musk initially predicted he could cut.

DOGE’s claims in regard to federal lease cuts are even more dubious. DOGE currently says, via its website, that it has cut 13 leases within the District, the largest being the U.S. Department of Labor’s 845,389-square-foot space at 2 Massachusetts Avenue NE. The non-governmental agency claimed in February that the cut had saved taxpayers $7.1 million. Yet the Labor Department’s lease there was already set to expire on May 14, and DOGE’s website now says that the cut amounted to $0 in savings. 

Indeed, DOGE had allegedly cut nearly 800 federal leases by mid-March, more than half of which were under 5,000 square feet. But that total has slowly ticked down over time, often without explanation. The agency now claims to have terminated just 384 leases throughout its seven-month tenure — barely half of what it had claimed to have cut at its peak. Still, the sheer amount of changes DOGE was able to make in such a short amount of time is virtually unprecedented, Sayin said. 

Doge could not be reached for comment.

“I think they overstated their own impacts, but compared to the way that the District has experienced these things, these are pretty dramatic,” Sayin said. “USAID [cuts are] pretty dramatic. The Department of Education [cuts are] pretty dramatic. DOGE has done a pretty good job to circumvent these [government bureaucracy regarding efficiency changes], but obviously the cost was that it was not a thoughtful exercise. It was not a discerning exercise. It was not an intentional exercise. It was like, let’s go break it and somebody will fix it, and hopefully it will be better when it’s fixed.”

Some of Trump’s executive orders and new policies set by the General Services Administration (GSA), the government’s non-military property manager, regarding the federal portfolio are likely to have a much deeper impact over time. 

Aside from slower leasing velocity, the GSA has so far only ramped up its decade-old downsizing strategy. The agency since March has steadily compiled a list of dozens of federal assets designated for “accelerated disposition,” which already amounts to tens of millions of square feet, and introduced a “space match” program for agencies to share offices according to their needs. 

The White House, meanwhile, called agencies earlier this year to submit relocation proposals outside of D.C. That April 14 deadline has come and gone. Trump even signed an executive order in January for federal buildings to “respect regional, traditional, and classical architectural heritage,” a clear jibe at properties like HUD’s former headquarters which feature a more modern, brutalist design style. 

Yet, at the end of the day, some experts maintain that these changes could be necessary for D.C. to reinvent itself despite the pain. 

The city is clearly in a transitional period, according to Crate, and the reality is that metropolitan revitalizations are never quick nor easy — just ask Detroit, Pittsburgh, Baltimore or a Brooklyn that barely two generations ago was full of belching factories and shipyards. The perennial presence of the federal government alone, in whatever form, means that D.C. is sure to eventually rise from the proverbial ashes. And that’s without mentioning the renovation of Capital One Arena, and likely redevelopment of the Commanders’ RFK Stadium site, which, depending on whom you ask, could provide the city with investment opportunities for decades to come. 

The catch, Crate implied, is that it’s simply too early to tell where the city goes from here.

“It will be a rebirth, and it’s going to be exciting to watch,” Crate said. “We don’t even know the sex of the baby yet.”

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