Promising Practices Promising PracticesPromising Practices
A forum for government's best ideas and most innovative leaders.

Is It Better for the Government to Lease or Own?

ARCHIVES
Basileus/Shutterstock.com

As part of its prevailing real estate strategy, the federal government is eschewing leases in favor of ownership to boost savings and efficiency. This approach aims to simplify a decision process that is complex for both public and private entities.

Simple return-on-investment calculations will often show it is less costly over the long run for agencies to own real estate than to lease it. In many cases, owning an asset specific to an agency's unique requirements may be the most efficient real estate solution.

But an optimal real estate strategy includes both owned and leased assets. Look at the private sector, where it is standard practice for companies with multiple locations to diversify assets across their real estate portfolios. This is a prudent approach.

For the federal government, individual asset-based decisions should fit within a broad portfolio strategy. A new white paper by JLL Public Institutions Group, a commercial real estate services firm, suggests five key considerations for any agency making real estate acquisition decisions:

  1. Relocation strategy options and flexible workplace solutions. The combination of constantly emerging technologies and the implementation of workplace strategies by the General Services Administration introduce opportunities to shrink the federal footprint and reduce operating costs. Agencies can take advantage of these opportunities through the nimble nature of leased properties, which can be more easily scaled than owned facilities.
  2. Vulnerability to shifts in market conditions and government missions. Leasing helps mitigate the risk of changing marketplace conditions. If a public service outgrows its relevance in a specific location, or if the agency providing a service needs to expand, it is much simpler and less costly to modify space across a leased portfolio than an owned one. Federal agencies should consider mirroring space decisions in the private sector, where corporations own key facilities that are less likely to change, such as headquarters campuses, and lease most regional and all satellite offices in locations that are more likely to experience changes.
  3. Incompatibility among some agencies or departments. Some people believe that the government should build more and larger facilities that house an ever greater number of agencies and employees at fewer locations. This strategy does not take into account the complications of consolidating government agencies with incompatible requirements. For instance, one agency requiring high levels of security need space that functions differently from an agency that requires public interaction.
  4. Additional occupancy responsibilities that come with ownership. The financial disparity in owning versus leasing is greatly reduced by the management and maintenance required to extend the life of a building. The administrative burdens that come with building ownership are handled by government staff and third-party service providers. In a lease, these services are administered by a landlord. In addition, the government assumes the effort and the risks associated with the cost, procurement and provision of facilities services.
  5. Value by leveraging longer-term lease requirements. Average federal renewal rates reveal that the government remains in place longer than private sector tenants. Longer occupancy leases of 10 years or more can capture some of the economics of the landlord’s reduced cost of capital as equity builds. Long-term leases will most certainly drive reduced lease rates, or beneficial concessions such as move costs or additional tenant improvement dollars, for federal agencies.

GSA’s portfolio is split approximately 50-50 between owned and leased space, a balance that is the result of multiple individual decisions and not just a top-down directive. The financial stewardship of GSA’s real estate assets, one of the largest portfolios in the world, is best served by a long-term strategy that balances the federal government’s capital costs and maximizes its flexibility.

These guidelines also apply to state and local municipalities, which are also working to create overarching portfolio strategies to make optimal real estate decisions.

Kevin Wayer and Barry Scribner are co-presidents of JLL Public Institutions Group, which specializes in commercial real estate services and investment management.

(Image via Basileus/Shutterstock.com)

FROM OUR SPONSORS
JOIN THE DISCUSSION
Close [ x ] More from GovExec
 
 

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Going Agile:Revolutionizing Federal Digital Services Delivery

    Here’s one indication that times have changed: Harriet Tubman is going to be the next face of the twenty dollar bill. Another sign of change? The way in which the federal government arrived at that decision.

    View
  • Cyber Risk Report: Cybercrime Trends from 2016

    In our first half 2016 cyber trends report, SurfWatch Labs threat intelligence analysts noted one key theme – the interconnected nature of cybercrime – and the second half of the year saw organizations continuing to struggle with that reality. The number of potential cyber threats, the pool of already compromised information, and the ease of finding increasingly sophisticated cybercriminal tools continued to snowball throughout the year.

    View
  • Featured Content from RSA Conference: Dissed by NIST

    Learn more about the latest draft of the U.S. National Institute of Standards and Technology guidance document on authentication and lifecycle management.

    View
  • GBC Issue Brief: The Future of 9-1-1

    A Look Into the Next Generation of Emergency Services

    View
  • GBC Survey Report: Securing the Perimeters

    A candid survey on cybersecurity in state and local governments

    View
  • The New IP: Moving Government Agencies Toward the Network of The Future

    Federal IT managers are looking to modernize legacy network infrastructures that are taxed by growing demands from mobile devices, video, vast amounts of data, and more. This issue brief discusses the federal government network landscape, as well as market, financial force drivers for network modernization.

    View
  • eBook: State & Local Cybersecurity

    CenturyLink is committed to helping state and local governments meet their cybersecurity challenges. Towards that end, CenturyLink commissioned a study from the Government Business Council that looked at the perceptions, attitudes and experiences of state and local leaders around the cybersecurity issue. The results were surprising in a number of ways. Learn more about their findings and the ways in which state and local governments can combat cybersecurity threats with this eBook.

    View

When you download a report, your information may be shared with the underwriters of that document.