The first wave from the Department of Government Efficiency review of all federal office space leases has found the impact on Western New York to be lesser than some other regions. But, as a cautionary note, more DOGE reviews are underway, and the complete impact of any local office space reduction could run deeper.
To understand just how much office space the federal government leases in the region, here are some numbers courtesy of the Washington-based Federal Lessor Advisory Group, which tracks such data.
There are currently 50 federal leases in office buildings that collectively total 1.3 million square feet. Most of the space -- some 90 percent is primarily in downtown Buffalo. This excludes federally owned buildings, like the Robert H. Jackson Courthouse.
Potentially five federal offices have been targeted in the initial DOGE cutback wave, and those five offices total 65,262-square-feet or 5 percent of the GSA’s local 1.3 million square foot footprint.
Consider one targeted office, the National Labor Relations Board leases nearly 38,000 square feet in the 130 South Elmwood Office Building. That lease pays slightly more than $1 million in annual rent payments to the building’s owner, Easterly Government Properties LLC of Washington.
Another 130 South Elmwood tenant, the Defense Contract Management Agency, who leases slightly more than 18,000-square-feet in the building and pays nearly $549,000 in annual rent payments.
Marcy Owens Test, Federal Lessor Advisory Group senior vice president, says both leases are examples of how DOGE is impacting the commercial real estate market in Buffalo and elsewhere.
“It’s not clear what will happen with those functions. Are they going to move into federally owned space? Or is there another vacancy in the market under federal control that they're going to move into? It does not necessarily mean that the lease will be terminated,” Test said. “The lease may be coming up, and it may need to be renegotiated. So, we don't necessarily know that the termination notice means they go away as a function.”
Downtown Buffalo has an office vacancy rate of 16.5 percent on slightly more than 33 million square feet of space. Any deal that sees more office space hitting an already fragile market is a red flag, warns Bill Heussler, Hanna Commercial Real Estate broker.
“It's not a positive thing. It is a negative that we're going to be opening more office space in what's already a vacant downtown, and I think it's probably going to soften the market, and what people are going to be able to ask is simply supply and demand. There's going to be more supply with the same demand, so rates should soften, which is not a good thing,” Heussler said.
Heussler - and others say - if downtown has a glut of office space, maybe it’s time to think of other adaptive re-use options such as converting vacant space into apartments. It’s a development model used elsewhere like at the Seneca One Tower - once a Marine Midland and HSBC Bank building – now hosts several apartments.
The same is true for other downtown buildings like the Glenny on Main Street and portions of the former L.L. Berger Department Store - now the Belesario Apartments
Acting Mayor Chris Scanlon says he would love to see vacant office space retrofitted into apartments —not only to fill empty buildings but also bring more people into the central business district in a 24/7/365 basis.
“If you have people living down there creating a community, that's going to be helpful. But then we've got to work on the city level and with other partners, whether it's nonprofit, private sector, whatever it might be, to get to create some things going on, create some destinations to make people want to live down there, come into work and be down there after work,” Scanlon said.
Federal Lessor Advisory Group’s Owens Test says Buffalo leaders should think strategically about any federal office space that goes dark because of DOGE recommendations, as other cities are now exploring. Hanna Commercial Real Estate’s Heussler agrees.
“I think we might be able to get the A space for cost closer to B space prices because the supply is out there, and they would rather fill that space and have it vacant,” Heussler said.
For now, it is a development scenario worth watching.
