Some agencies are paying space leasing rates to GSA that exceed market rates, GAO has said, with about half of the more than 700 leases auditors reviewed exceeding the local private sector rate for similar space by 10 percent or more.
“GSA is unable to more consistently achieve lower rates because competition among private lessors for these leases is limited; 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. For example, an agency’s initial requested geographic area may be so restricted that it does not include any buildings that meet all tenant requirements, resulting in increased costs and time as GSA explores alternatives,” said the report.
In addition, overall federal leasing costs increase when agency tenants finance improvements to newly leased space rather than pay them upfront. GSA tenants routinely amortize these costs over the term of their leases and pay interest rates of up to 9 percent to the building’s owner, the report said.
Another factor adding to agencies’ cost is that GSA requires most tenants to sign cancelable occupancy agreements, which permit tenants to vacate leased space under certain circumstances in exchange for a higher fee paid to account for the risk of GSA’s possibly having to find a new tenant for the space, it said. But that flexibility is not used often and allowing tenants the option of choosing non-cancelable agreements would reduce their costs, it said.
GSA agreed to increase competition and determine if it can use its federal building fund to pay tenant improvement costs upfront and avoid the interest cost of stretching out those costs but disagreed with allowing tenant agencies to choose non-cancelable occupancy agreements.
