As the U.S. begins its first federal government shutdown since 2018, with uncertain repercussions for the economy, the ghost of Elon Musk continues to rattle real estate markets across the U.S.
Even though Musk left the government months ago, his legacy remains with DOGE. One of the ways in which DOGE has sought to cut government expenses has been to cancel leases of hundreds of offices across the country. While the DOGE website lists how much has been saved from each cancelled lease — in all, 384 cancelled leases at an estimated savings of roughly $140 million — experts say the savings come at a broader economic cost.
Cameron LaPoint, assistant professor of finance in the Yale School of Management, has studied the impact of DOGE closures on the commercial real estate market. LaPoint points out that the government, as a tenant, used to be a very safe bet. Because of that, their leases often included cancellation clauses that rarely were invoked — it was a goodwill gesture from the landlord that cost them little. Until now.
“If you and I are renting an apartment and cancel the lease, there is a penalty of several months’ rent,” LaPoint said. But when the government cancels a lease, the landlords are left high and dry. That is happening in cities large and small, rural and red, urban and blue. “A lot of private landlords are renting space out to government agencies, and they were counting on these agencies being in their space paying rent for five years. Now landlords have to find new tenants,” LaPoint added.
The savings DOGE touts, according to LaPoint, are largely based on the assumption that the government would have renewed the leases when they expired, but the DOGE numbers aren’t factoring in that some leases naturally wouldn’t be renewed due to normal government downsizing or relocations.
It may not seem like a few hundred lease cancellations could send a jolt through the country’s financial system, but lease cancellations do have a ripple effect. “The multiplication effects can be tied to thousands of loans across the country the way the commercial debt market works,” LaPoint said.
Government leases provide stable, predictable income that makes them attractive to lenders. When these “anchor tenants” disappear, it doesn’t just affect the buildings — it can destabilize the broader commercial lending market because banks package these property loans together into investment securities. That means problems with government-leased properties can spread risk across thousands of other loans nationwide.
A spokeswoman for the General Services Administration, which manages federal assets, said it has achieved notable results in a short time as it optimizes the federal portfolio, and estimated the savings to American taxpayers at $113 million.
When Feds Leave, so does financing linchpin, and confidence
“I’m seeing the effects of cancelled federal leases developing into a chain reaction in a number of markets,” said Alexi Morgado, realtor and CEO of Lexawise, based in Florida. “The availability of supply does not always lead to immediate demand, putting strain on operating income and building values, which can complicate financing.”
Of the 384 leases currently listed on the DOGE website for cancellation, the top three agency tenants are the Social Security Administration (23 leases cancelled), the Small Business Administration (22 leases cancelled), and the Geological Survey (22 leases cancelled).
The largest office to be axed by DOGE, according to LaPoint’s research, was a behemoth 845,000-square-foot office in D.C., with the smallest being a 250-square-foot Secret Service office in New York City.
The impact can be uneven by geography.
“In Florida, while the markets remain strong, we are seeing areas where reduction of public office space has placed additional pressure on landlords to reposition in the market and find other uses for space,” said Morgado, adding that some repositioning could include transforming empty office space into residential or mixed-use developments. “For agents like myself, it creates potential opportunities, but it is also going to require creativity and a far more strategic approach to repositioning space that could previously withstand whatever may come,” he said.
Mark Besharaty, senior vice president of commercial lending at California-based Arbor Financial Group, agrees that landlords of now-vacant government office space will need to get creative.
“To mitigate what I see happening in most cases, the owners of these properties will have to reconfigure the properties to fit a different kind of tenant base,” Besharaty said. Mitigation measures include subdividing larger government offices into smaller, more manageable parcels so other businesses can move in.
In the meantime, the closures will…
Read More: DOGE cuts show how smaller government can harm economy