GSA Lease Rates Aren't Competitive with the Private Sector's

The government’s landlord could save money by bargaining more competitively when it leases space for agencies and by curbing unnecessary leasing fees, the Government Accountability Office found.

The General Services Administration's lease rates exceeded comparable market rates by 10 percent or more in a large number of 714 leases that auditors reviewed for the years 2008 to 2014, according to a report released on Wednesday.

Interviews with officials from all 11 GSA regions and with private real estate interests showed that “GSA is unable to more consistently achieve lower rates because competition among private lessors for these leases is limited,” the report said. “This limited competition is due to factors including tenant agencies' requested geographic areas and specialized building requirements, as well as the length of GSA's leasing process.”

In addition, “inaccurate estimates complicate tenant agencies' planning, but tenant agencies often have to accept increases in GSA's cost estimates because some lack authority to independently lease space,” GAO said.

One of GSA’s long-standing goals is to rent to agencies at rates below that of the commercial market, and the agency at the beginning of the Obama administration began to simplify the leasing process for lower-value properties in its 377 million rentable square feet. Over the past seven years, the share of square footage being leased, versus owned by the government, has steadily risen.

Costs can rise if an agency’s range of geographic choices that meet its criteria is narrow, and may increase further when agencies require tenant improvements, costs of which are amortized at interest rates often as high as 9 percent.

Leasing “will likely continue to remain a significant part of the federal property management system,” GAO concluded. “While it is preferable to own property if an agency has stable rather than variable needs requiring flexibility, it is also important to reduce leasing costs.”

Auditors recommended that GSA enhance competition by encouraging tenant agencies to modify their geographic and building requirements, while also seeking authority to use Federal Building Fund balances to reduce interest fees. The agency should also give tenants the option to reduce fees by choosing non-cancelable occupancy agreements, the report said.

GSA agreed with the first two recommendations, but disagreed with allowing agencies to choose non-cancelable occupancy agreements.

(Image via Ben Harding / Shutterstock.com)