White Papers – SM-WP-15-002 – 05/12/2015
The U.S. Postal Service leases more than 23,000 buildings, consisting of about 79 million interior square feet. It pays more than $800 million annually to lease these properties. The Eastern Area has 10 districts covering parts of New York and extending as far south as Tennessee. As of September 2014, the Eastern Area leased more than 4,500 buildings, with annual lease costs of over $111 million.
The Postal Service Facilities organization typically begins the lease renewal process by providing area officials a report of leases expiring within the next 24 to 36 months. Depending on the lease value, area officials will take action to renew or terminate the lease. Prior to renewing a lease, the Facilities organization completes an analysis of the lease value or a real estate appraisal. Property management activities, such as maintenance and repairs, must also be considered when evaluating lease rates.
During fiscal year 2014, the U.S. Postal Service Office of Inspector General developed a predictive risk model to analyze Postal Service properties. The model analyzes whether the Postal Service is renewing leases at a fair price and whether it needs the leased space that is due for renewal. This paper highlights potential cost saving opportunities relating to the buildings the Postal Service leases in the Eastern Area.
The Eastern Area could save more than $2.2 million annually in lease costs relating to 77 leases that are due to expire over the next 2 years.1 The predicted local market lease rates for these facilities are lower than the Postal Service’s current lease rate. Each of these facilities has potential lease cost savings of at least $5,000 annually.2 While there is no single substitute for factors such as location, relocation costs, and building condition when assessing a new or existing lease, the Postal Service could benefit by using forecasted lease rate information, in conjunction with other assessment activities, when renewing its leases.
1 The 77 leases will expire on various dates from May 31, 2015, through March 31, 2017.
2 Additional facilities have potential cost savings totaling less than $5,000 annually. Our analysis focused on those leases with the highest potential for cost savings.