Government Cuts Clip Office Market

NNN Lease Market News

Smaller government means less demand for office space, and that is acting as a drag on the recovery of the commercial-real-estate market.
In Washington and elsewhere, government leasing has helped prop up demand in tough times. But now cash-strapped governments are moving to cut back on office space, even as commercial real estate struggles to recover.
After the financial crisis first hit, buildings with government tenants were a safer bet. Washington emerged as the healthiest office market in the country, with rents falling much less than other cities.
Rents have been rising in some prime markets since the depths of the downturn. In Washington's Georgetown market, effective rents were up 2.2% in 2010, according to Reis. In Midtown Manhattan, rents rose 0.2% during the year.
But in many markets rents actually fell last year, with net effective rents down 1.5% nationally, according to Reis. If government agencies contract without the private sector expanding more, downward pressure will continue, some predict.
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