Credit Costar
For years, real estate leased to federal agencies was considered one of the safest investments. With long-term lease commitments, strong credit backing, and stable tenant demand, these assets provided reliable cash flow and minimal risk. However, recent shifts in government policy are challenging that assumption.
The Department of Government Efficiency (DOGE) is aggressively reducing the federal office footprint by consolidating agencies, terminating leases, and cutting administrative expenses. In some cases, entire departments are being eliminated or downsized, putting billions of dollars in commercial mortgage-backed securities (CMBS) at risk.
While some federal leases remain safe, others are now high-risk investments that could face early termination. Understanding which federal tenants are stable and which are vulnerable is critical for investors looking to navigate this shifting landscape.
The security of a federal lease depends on the agency occupying the space, the function of the office, and the political environment.
Certain federal agencies are more vulnerable to cuts, particularly those that primarily serve administrative functions. These include:
Certain agencies are unlikely to face reductions due to their essential roles in national security and public services. These include:
For investors, the key is to understand the stability of the tenant agency before acquiring a federal-leased asset.
A recent Barclays report revealed that $12 billion in CMBS loans are tied to properties leased to federal agencies. If these agencies terminate their leases early or fail to renew, it could lead to:
Investors should analyze lease expiration timelines, early termination clauses, and market dependence on federal tenants before making new acquisitions.
Given the uncertainty surrounding federal office space, investors should conduct more detailed due diligence before considering government-leased properties.
Federal leases are not as safe as they once were. With widespread government consolidation and cost-cutting measures, investors need to analyze each lease individually to determine its true risk level.
Some properties—such as law enforcement offices, national security facilities, and congressional offices in stable districts—remain strong investments. Others—like administrative agency leases and compliance offices in secondary markets—are increasingly risky.
Successful investors will take a more selective approach in today’s market, focusing on secure agencies and buildings with strong alternative-use potential.
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