Navigating Market Shifts

As headlines swirl around potential GSA lease terminations, commercial real estate professionals are closely monitoring the potential impact. A recent survey by the CCIM Institute revealed a market filled with cautious curiosity, with concern levels highest among industrial property owners and those involved in government-specific leases. While many respondents anticipate moderate market adjustments, others see the potential for more significant shifts.

Among key findings:
• 40% of respondents believe the impact will be minimal, though still worth monitoring.
• 38% anticipate moderate disruption, with some properties expected to face challenges.
• Industrial property owners and those dealing with government facilities expressed the most concern, emphasizing the specialized nature of these risks.

Industry experts point to several strategies and observations in response to these uncertainties. Chad Becker, Principal at Arco Real Estate Solutions, emphasizes the importance of measured responses and a thorough understanding of the evolving landscape. “The key is to maintain calm and pay attention to the nuanced details,” Becker says. He notes that the Department of Government Efficiency’s (DOGE) list represents leases given notice of termination, not finalized terminations. To date, 137 termination notices have already been rescinded, showcasing the dynamic nature of the situation. Scale is another important factor. While headlines cite 7.9 million square feet of potential terminations, Becker notes that 54% of these leases are 5,000 square feet or less, and 75% are under 10,000 square feet, indicating that much of the impact may be more manageable than it initially appears.

Becker advises property owners who have received termination notices to prepare for holdover situations. “Many agencies occupying the space are not aware that GSA is trying to terminate their lease. Without relocation plans or move contracts, there is a high likelihood they will not vacate by the termination date.” He also recommends that owners engage with local congressional representatives, highlighting that outreach to local offices, rather than those in Washington, D.C., has proven effective.

Leslie Biskner, CCIM, Executive Vice President of the Commercial Lending Group at Cooperative Business Services LLC, reinforces the need for proactive strategies. “GSA lease terminations are a real concern, but we’re staying ahead of the curve,” she says. Her team is working with borrowers to diversify tenant mixes, stress-test underwriting, and consider alternative uses for affected properties. “Flexibility is everything in this market,” Biskner advises.

Opportunities may arise for developers and property owners willing to adapt. Becker identifies two key areas of potential: acquiring federally owned properties that no longer serve their communities and assisting owners in repositioning newly vacated assets. Biskner agrees that owners who can reposition these assets — whether through mixed-use conversions, attracting private-sector tenants, or targeting emerging industries — are best positioned to succeed.

The survey results and expert commentary suggest that secondary markets could feel the most significant impact. In regions like the Midwest, government-anchored properties have long been considered safe investments. However, Biskner warns that investors are now prioritizing assets with strong fundamentals and repositioning potential. She predicts trends toward shorter lease terms, adaptive reuse, and creative repositioning into sectors such as medical, education, and flex-industrial.

Reputational risks for GSA are also emerging. According to Becker, the current situation has already led to diminished confidence in GSA-leased assets, resulting in rising cap rates. “The next few months will either allow GSA to repair the damage or cause further harm,” he notes.

For commercial real estate professionals, the message is clear: preparation and adaptability are key.

Survey respondents and experts alike emphasize the importance of:
• Remaining calm and informed, avoiding reactions driven by headlines.
• Preparing for operational challenges such as
holdovers and engaging with political representatives.
• Proactively working with lenders and stress-testing property portfolios.
• Staying flexible and ready to reposition assets as market conditions evolve.

As the situation continues to develop, CCIM Designees and candidates are well-positioned to help clients and communities navigate the shifting landscape. The ability to adapt quickly, seek expertise, and approach challenges with creative solutions will likely define successful strategies in the months ahead.