Can the Office Recovery Survive DOGE’s Downsizing?
A massive push in recent months to encourage—or force—workers back into the office stirred optimism within the commercial real estate industry about the office sector’s recovery. In fact, at the recent CRE Finance Council Annual Meeting, 68% of professionals polled by TD Bank cited RTO policies as the most significant business decision shaping the market in 2025.
While office attendance has improved in certain markets, this shift has yet to translate into a meaningful rebound in office property values. Vacancy rates climbed to nearly 20% in January 2025, and industry analysts expect debates over in-person work to continue through at least 2027 as companies refine their policies.
Any optimism about a potential recovery was further dampened by the latest job report from Challenger, Gray & Christmas. According to the global outsourcing firm, planned job cuts surged 245% to 172,017 in February 2025—the highest level since July 2020, during the height of the pandemic shutdowns in the U.S. It was also the highest February total since 2009, at the peak of the subprime crisis and Great Recession.
The spike is directly linked to the current administration’s cost-cutting efforts—particularly through its Department of Government Efficiency (DOGE). Challenger reports that 17 federal agencies announced a combined 62,242 job cuts in February, bringing the year-to-date total to 62,530—a staggering 41,311% increase compared to the prior year.
As of year-end 2024, the U.S. federal government employed approximately three million individuals, excluding active-duty military personnel. That accounts for 1.9% of all U.S. jobs—a figure that hasn’t exceeded 2% since 2014.
Whether additional layoffs occur remains uncertain, as federal judges recently blocked DOGE from terminating another 200,000 government employees in early March. Still, Challenger analysts identified the “DOGE impact” as the primary driver of this year’s layoffs. The fallout extends beyond federal jobs, with contractors and private-sector firms reliant on government work also taking a hit.
Space Cuts Accelerate…Then Skyrocket
In line with cost-cutting measures, DOGE has instructed the General Services Administration (GSA) to significantly reduce its commercial real estate footprint, reportedly targeting 500 buildings nationwide for disposition. The plan focuses on shedding older, non-core properties, with the goal of consolidating tenants into remaining office spaces where necessary.
Leases—some 7,500 across the U.S.—are also in jeopardy. According to the Associated Press, which obtained a leaked GSA email, DOGE intends to terminate a significant portion of its leased office space. A Trepp analysis found that the GSA currently leases 149 million square feet of office space nationwide, paying $5.2 billion in annual rent to private-sector landlords.
Within two weeks of the new administration’s inauguration, 22 leases had already been canceled. The scale of lease terminations has expanded dramatically since then. As of early March, DOGE had canceled approximately 10% of all active federal leases, amounting to 748 terminated agreements across all 50 states and U.S. territories. These leases cover roughly 9.6 million square feet of office space, representing an estimated $660 million in annual rent savings.
The speed of these cancellations has doubled in less than a week, signaling an aggressive push by the administration to cut costs. While DOGE initially targeted leases that had reached their termination rights date, analysis indicates that nearly 90% of the canceled leases were still in use by federal agencies at the time of termination. The broad nature of the cancellations has left some agencies scrambling to determine next steps, with legal and contractual disputes expected to arise.
Whether the rest of the planned terminations proceed smoothly remains unclear, given existing contractual obligations. Trepp notes that GSA has the right to terminate 53 million square feet of leased space—approximately 35% of its total footprint—by 2028.
Regardless of whether the returned space is for sale or lease, the impact on the commercial real estate market is expected to be severe. Office vacancy is already at record highs, and a tight financing climate has made it increasingly difficult for landlords to navigate the downturn.
A Tipping Point for Office
While conversions to alternative uses are often suggested as a solution, many of these buildings are not well-suited for residential or other repurposing. Even when the layouts allow for it, rising development costs make such transitions difficult to justify financially.
If the government vacates a building and attempts to sell it, it could be left with a nearly worthless asset—particularly in a market already oversaturated with underutilized office properties. The buildings DOGE aims to dispose of are largely older, underused office assets—the exact type of space already struggling to find buyers. Adding hundreds more to the market will only intensify the supply glut, further depressing valuations.
A fire sale of this scale would deal another major blow to the office market, potentially wiping out fragile gains made by landlords betting on an RTO-driven recovery.
The impact won’t be limited to landlords alone. The CMBS market—already seeing rising delinquency and default rates—faces additional pressure. Office loan defaults have reached their highest level since the Global Financial Crisis, and if government lease terminations further reduce NOI, more properties could fall into distress, triggering a fresh wave of defaults.
Yet, some investors see opportunity amid the uncertainty. Distressed pricing could create openings for well-capitalized buyers looking to acquire office assets at significant discounts. Savvy investors with access to private capital or creative repositioning strategies may find ways to extract long-term value from these assets, despite near-term volatility.
For an industry that had pinned its hopes on return-to-office momentum, these cuts represent a significant setback. Instead of regaining stability, the office sector now faces a new era of uncertainty. However, history has shown that downturns create opportunities for those positioned to act. If DOGE’s full cost-cutting plan is executed, the market may not see meaningful stabilization for years—but for investors prepared to navigate the turmoil, there may be ways to capitalize on the disruption.
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