Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / The Billions Wasted on Empty Federal Office Space
Transcript
- Lucas: There's a number I've been looking at all week that I cannot get out of my head. The federal government spends roughly two point two billion dollars a year to heat, cool, and maintain office space that nobody is using. Luna: Two point two billion? For empty offices? That's a lot of empty cubicles. Lucas: It is. And it's not just a few buildings here and there. The General Services Administration, or GSA, manages about one hundred eighty million square feet of office space across the country. According to a Government Accountability Office audit from late last year, the vacancy rate in gsa controlled buildings hit twenty-six percent in fiscal 2025. Luna: So more than a quarter of that space is empty, and we're still paying full price for it. How does that happen? Lucas: It's a combination of things. One big factor is that a lot of federal agencies are locked into long-term leases that they can't break. The GSA often signs ten- or fifteen-year leases, and even if an agency's workforce shrinks, they're on the hook for the whole term. Luna: And I'm guessing the pandemic's move to remote work made this worse. Lucas: Absolutely. Before 2020, the government had already been struggling with space utilization. But after COVID, telework became permanent for many federal employees. The Office of Personnel Management reported in 2024 that about forty percent of eligible federal workers were teleworking at least three days a week. Yet agency footprints barely budged. Luna: Why not? If you know your staff is only in the office two days a week, wouldn't you downsize? Lucas: You'd think so. But there's a perverse incentive at play. Agencies that give up space lose their budget allocation for that space. The money goes back to the GSA or to Treasury. So agency heads have an incentive to hold onto offices, even if they're underused, because losing the space means losing budget authority. Luna: So it's a 'use it or lose it' problem, but the 'use' is just keeping the lease alive. Lucas: Exactly. And there's another layer. Some of these leases are in buildings that were specifically built for a single agency, like the Department of Energy's complex in Germantown, Maryland. Those are hard to sublet or repurpose. They're not exactly prime downtown real estate. Luna: What about the buildings the government actually owns? There must be properties that could be sold. Lucas: The GSA does maintain a list of 'high-value assets' it wants to sell. But Congress often blocks sales. There's a classic example: the Old Post Office building in Washington, D.C., which sat empty for years before being redeveloped into a hotel. But that's the exception. A 2023 report found that the GSA had identified over one hundred properties it wanted to dispose of, but it had only sold about ten in the previous decade. Luna: So political obstacles are part of it. Which makes sense — members of Congress don't want to lose federal buildings in their districts. Lucas: Right. And there's also the issue of how the government accounts for space. The GSA charges agencies rent based on a formula that includes operating costs and debt service. But the rent doesn't necessarily reflect market rates. In some cases, agencies in government-owned buildings pay less than market, which makes them reluctant to move. But in leased buildings, they often pay above market because the GSA negotiates leases that include things like security upgrades and energy efficiency, which aren't itemized. Luna: So the true cost of that empty office space is probably higher than two point two billion. Lucas: Possibly. The GAO audit only looked at a subset of gsa managed buildings. There are also space costs in the Department of Defense, the VA, and other agencies that manage their own real estate. The Pentagon alone has a massive footprint. When you add all that up, the total could be three to four billion a year. Luna: And in a time of tight budgets and deficit concerns, that seems like low-hanging fruit. Lucas: You'd think. But there have been reform efforts. The Federal Real Property Management Act of 2016 required agencies to reduce their inventory. It had some effect, but the overall vacancy rate actually increased after the pandemic. More recently, the Biden administration issued a memo in 2024 asking agencies to cut office space by thirty percent by 2028. We're halfway through that timeline, and the early numbers aren't great. Luna: What are the numbers so far? Lucas: As of mid-2026, the GSA reports that agencies have reduced their space by only about eight percent. Partly because agencies have to go through a lengthy process to terminate leases. And partly because the GSA itself has a financial incentive to keep space leased — it earns revenue from agencies for managing those properties. Luna: So the landlord and the tenant are essentially the same entity, but with different incentives. Lucas: Exactly. It's a classic principal-agent problem. The GSA's mission is to manage federal real estate efficiently, but its revenue model depends on agencies occupying space. So it has little incentive to push agencies out of buildings or to shrink the portfolio aggressively. Luna: I want to ask about one specific case I read about: the Department of Agriculture's headquarters complex in Washington. I think that was about seven hundred thousand square feet, and at one point it was mostly empty. Lucas: You're talking about the Jamie L. Whitten Building. That's the big one near the National Mall. At its peak, the USDA had about seven thousand employees there. After the pandemic, the occupancy dropped to maybe fifteen hundred on a busy day. The building still costs about fifty million dollars a year to operate. There was a plan to consolidate and lease out part of it, but Congress blocked it because of local opposition. Luna: And that's just one building. Multiply that across dozens of agencies and you get the two point two billion figure. Lucas: Right. And the interesting thing is, the solution isn't complicated in theory — it's just politically hard. You could mandate that agencies pay for space out of a separate budget that doesn't roll over, so they have a real incentive to downsize. Or you could allow the GSA to keep a portion of the savings from selling properties, rather than sending it all back to Treasury. A few pilot programs have shown that works. Luna: But Congress has to pass those changes. And that's the real bottleneck. Lucas: It is. And it ties into a broader theme we've covered before: the government's inability to manage its own assets efficiently. We've talked about selling public assets at a loss, about idle land, about building repairs. This is just another chapter. Luna: It's almost like the system is designed to keep spending, even when the need is gone. Lucas: That's the uncomfortable conclusion. And it's not just about money — it's also about the environmental cost of heating and cooling empty buildings, and about the lost opportunity to use that space for something productive. Luna: Yeah. On that note, I think it's worth mentioning that this show is possible because of a small group of listeners who support us directly. If walking through the economy with us has made something click, you can buy us a coffee at buy me a coffee dot com slash fexingo. It's literally how we keep this ad-free and focused on the numbers that matter. Lucas: Thanks for that. So back to the empty offices — there's a ray of hope. The GSA recently launched a pilot program at a few locations where it allows coworking companies to sublease unused federal space. It's small, but if it scales, it could be a model. Luna: Coworking in federal buildings — that's an interesting twist. Could that actually reduce the vacancy rate? Lucas: It could, but it's still early. The pilot involves about fifty thousand square feet across three cities. The GSA estimates it could generate a few million dollars in revenue. But compare that to two point two billion in waste — it's a drop in the bucket. The real change has to come from Congress. Luna: And from agencies being willing to give up space. Which, as we've seen, is the hardest part. Lucas: It is. But at least now we have a clear number to point to. Two point two billion a year for empty offices — that's a starting point for the conversation. And for listeners who want to dive deeper, the GAO report is public and has all the details. Luna: And if that report sparks an idea for a follow-up, we're all ears. Thanks for listening.