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federal government effort to reduce office space and save tax dollars by scaling back its workforce is facing challenges in Chicago, according to real estate industry insiders. The plan involves terminating leases set to expire and selling federally owned properties, but experts say this approach will be difficult due to long-term lease agreements with strict cancellation policies and outdated or niche-use buildings.

    Selling federal buildings is a complex process, particularly those adjacent to the U.S. District Court for the Northern District of Illinois, which have specific security requirements. The John C. Kluczynski and Ralph H. Metcalfe buildings in the Loop are among those being considered for sale, but their unique security needs may make them difficult to sell.

    The federal government owns over 5.3 million square feet of office space in Chicago, with many properties outdated or having niche uses. Repurposing these buildings for private use is a challenge, and some may be too expensive to demolish. However, there are examples of successful conversions, such as the Old Post Office building, which was transformed into offices before the pandemic.

    Leases are easier to offload than owned properties, but terminating existing agreements can be complicated due to long-term contracts with firm terms. The government will focus on expiring leases first, but this may not meet its downsizing ambitions. Even if all leases were terminated, it would only account for a small portion of the 50% reduction goal.

    The market is uncertain, and some plans to consolidate space predate Trump's administration. The GSA had been in talks to sell the William O. Lipinski Federal Building in River North before Trump took office. Renovations are needed at the Metcalfe building due to outdated systems and equipment, which may be a challenge for private owners.

    In suburban Des Plaines, an office building owned by Easterly is set to be torn down and sold as a redevelopment site after the FAA vacates its lease. When older buildings like the Kluczynski Federal Building are not demolished, brokers face a tough sell due to needed updates to compete in the current market. The median age of federally owned buildings in Chicago is 77 years old.

    Market players with no interest in taking on these buildings may feel the effects of their addition to Chicago's beleaguered office market. Experts recommend that the government slowly drip its inventory onto the market consistent with local absorption rates to avoid causing inefficiencies in the real estate market.