For Rent, Cheap: Federal Office Space

There’s a new player stepping into the already depressed commercial real estate market -- Uncle Sam.

Ordered by the Obama administration to find revenue to help cut the deficit, dozens of federal agencies are looking to be landlords and will start leasing space in unused parts of federal buildings across the country.

Federal building leasing has been going on for a long time, but not on this scale. Nearly 400 federal buildings already rent space to private businesses, including restaurants, banks, hair salons, newsstands, even local movie theaters and farmers’ markets. The White House’s goal is to have space available to lease to businesses in 1,000 federal buildings by 2013.

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The General Services Administration, which manages more than 4,300 federal buildings, is poring over its real estate portfolio for leasing opportunities in federally run office parks, depots, storage warehouses and lab facilities, among others.

The military, too, is reviewing 370 buildings and storage places for potential private leasing deals, including at military facilities in Los Angeles, San Diego, Newport News, Va., St. Louis, Groton, Conn., and Philadelphia.

Federal leases are often bargains for renters, with the government more eager to find tenants for empty space than to get top dollar. Federally owned office space in Louisville, Ky., for instance, was rented last year for half of what was being charged tenants in nearby privately operated office buildings.

Pending deals. A Department of Housing and Urban Development annex in Worcester, Mass., will soon be up for rent after 90 employees are relocated to Boston. A four-story Bureau of Land Management complex in Sioux Falls, S.D., that can house 200 employees also will soon be on the block.

More than 400,000 square feet of NASA office space is expected to be rented to business developers in Cape Canaveral, Fla., later this year. And 300,000 square feet of NASA office space in Houston will be designated for lease. Unused office space operated by the U.S. Mint in Denver and San Francisco is likely to be turned into rental properties, too.

The commercial real estate lobby is up in arms about added competition from the federal government, but there is little it can do. Though the government is renting, it’s not everywhere. Federal office renting will likely occur with little public notice, and Congress isn’t going to pick a fight with the administration over renting vacant office space. Actually, it’s more likely that lawmakers will aim to increase federal building space available for rent beyond the 1,000 buildings to 1,500 or so in the next decade. Congressional hearings on federal building leasing deals are planned this summer.