April 29, 2025
- Taxpayer Relief. DOGE’s lease cancellations and property sales are projected to save nearly $79 million nationally, reducing federal spending.
- Market Disruption. Unexpected lease terminations and building sales are creating uncertainty for commercial landlords and investors, especially in New York.
- 2025 Outlook. While short-term instability may persist, long-term effects will depend on how the private sector reabsorbs the released space and investor appetite for repurposed assets.
The Trump administration’s aggressive push to reduce government spending through real estate cuts is sending ripples across the commercial real estate (CRE) landscape. Spearheaded by the Department of Government Efficiency (DOGE), the initiative includes canceling or restructuring 98 federal leases covering over 2 million square feet and proposing the sale of hundreds of federally owned buildings. While Washington, D.C. bears the brunt, cities like New York are beginning to feel the impact, particularly as iconic federal properties are flagged for potential divestiture.
New York, a commercial real estate center with the largest office space in North America at over 730 million square feet, is already seeing consequences. A few notable structures within New York City itself were considered for potential sale in a now-deleted list published by the US General Services Administration (GSA). These included the Joseph P. Addabbo Federal Building in Jamaica, Queens, the largest on the list at over 800,000 square feet, as well as the Ronald H. Brown U.S. Mission to the United Nations, the Silvio J. Mollo Federal Building in Hudson Square, and the Ted Weiss Federal Building in lower Manhattan. DOGE’s cost-cutting program, though aimed at saving taxpayers up to $430 million annually, risks upending already stressed urban CRE markets that rely heavily on government tenancy and spending.
Are there Positive Impacts of the Federal Real Estate Cuts?
1. Significant Federal Savings and Efficiency Gains
DOGE’s 98 canceled or restructured leases are expected to save U.S. taxpayers $78.9 million. These cuts reduce federal reliance on costly, underutilized office spaces—many of which exceed local market rental averages by as much as 50%, according to Bank of America Securities. In New York, this shift helps spotlight government inefficiencies and encourages modern, right-sized leasing strategies.
2. New Opportunities for the Private Sector
The GSA’s initial list of 443 buildings included prominent properties like the U.S. Mission to the UN in New York. If released to the market, such buildings—many located in prime real estate corridors—could be repurposed for commercial, residential, or mixed-use development. Given New York’s space constraints, these sites present rare redevelopment opportunities in core districts.
3. Potential for Reinvestment in Higher-Quality Federal Facilities
By shedding outdated, high-maintenance properties—some requiring over $8 billion in capital improvements—the government could redirect funds into modern, energy-efficient buildings better suited for evolving workforce needs. This aligns with broader urban revitalization goals in cities like Buffalo and Manhattan, where smart federal reinvestment can bolster surrounding property values.
Major Impacts on Commercial Real Estate
1. Tenant Losses for Key Federal Landlords
Firms like Easterly Government Properties and Office Properties Income Trust are losing major tenants due to DOGE’s broad-based lease terminations. In Buffalo, Easterly lost the National Labor Relations Board as a tenant, contributing to overall landlord unease. Nationally, Office Properties Income Trust is bracing for an additional 110,000-square-foot vacancy, threatening nearly $856,000 in annual revenue.
2. Destabilizing Impact on Local Markets
New York’s CRE market is already contending with post-pandemic vacancy rates exceeding 20% in some office sectors. Sudden vacancies from federal exits can further depress rental rates and investor confidence. The potential sale of the Holtsville IRS service center, for instance, removes a key public-sector anchor in Long Island, increasing uncertainty in suburban office corridors.
3. Confusion and Political Pushback
The erratic rollout of DOGE’s real estate strategy has added to market volatility. The GSA’s abrupt publication, revision, and withdrawal of the building sale list—which originally included over 440 properties—has triggered backlash, even from Republican allies. In New York, where federal properties are intertwined with state and city operations, unclear divestment plans risk disrupting essential services and eroding public trust.
2025 Outlook with New York & the Cuts
As the Trump administration continues its cost-cutting agenda, New York’s commercial real estate sector faces a challenging but potentially transformative 2025. The reallocation of prime federal properties could offer long-term growth opportunities, particularly for developers with vision and capital. However, in the short term, the unpredictability of DOGE’s lease terminations and asset sales will continue to pressure landlords and weaken confidence in government-tenanted portfolios.
With over 18.4 million square feet of federal leases expiring this year and an additional 54 million square feet under termination-risk contracts, the scale of potential market disruption is significant. For New York, success will depend on proactive city planning, investor adaptability, and clarity from federal agencies on what comes next. In the meantime, stakeholders should prepare for continued volatility—and the opportunity that may follow in its wake.
For expert guidance and comprehensive solutions in the New York commercial real estate market, visit NYCCREA at nyccrea.com to explore how our services can support your objectives.
References:
Trump administration moves to cut nearly 100 federal leases as real estate shake-up grows (COSTAR)
GSA Publishes, Then Pulls Federal Building Sale List (CRE Finance Council)
Trump administration deletes list of hundreds of federal buildings targeted for potential sale (AP)
See which federal buildings in NY, NJ the Trump administration may put up for sale (NBC New York)
