A more-frugal state government is trimming its leased office space in the Indianapolis area by consolidating offices or pulling agencies back in-house to the Downtown Government Center.

More than 1,000 state employees will relocate under the state’s office consolidation plan in the next two years.

Government officials hope to shave perhaps a few million dollars from the $18 million the state pays for 1.1 million square feet of leased office space in the metro area.

“We’re reviewing all leased space,” with an eye to reducing it, said Mark W. Everson, commissioner of the state Department of Administration. “That’s the responsible thing to do in this environment.”

So far under the plan, one agency — the Arts Commission — has vacated its private office and relocated nine employees to the Government Center. Two other offices are in the process of moving: the State Budget Agency and a 150-person office of the Department of Environmental Management.

Others will move as leases come due in the next two years, Everson said.

He said the state is still deciding which agencies will move and where. The goal is to reduce by up to 300,000 square feet the state’s total leased space in the metro area, he said, calling the moves “a complicated mosaic.”

Downtown’s office market will be hit hardest by the state pullback. The state leases about 6 percent, or 650,000, of the 10.6 million square feet of multi-tenant office space Downtown.

Between now and the end of 2011, leases will expire on about 210,000 square feet of state-rented office space Downtown, according to a state leasing report.

Most of the state’s space is in nonprime office buildings where it can get lower rents, such as the Old Trails and Fair buildings at 309-311 W. Washington St.

“We’re going to bleed a little bit” as the state pulls employees from those buildings, said Paul Ayers, president of Marks Cos., which manages the two buildings. They are more than 90 percent leased to the state.

Ayers said the state isn’t asking for lower rents or other financial sweeteners.

To lure new tenants to fill space vacated by the state, owners of the Washington Street buildings are considering adding a parking garage, with stacked space for 40 cars, Ayers said.

The state pullback will further soften demand for office space Downtown, which saw its vacancy rate worsen from 16 percent to 20 percent since spring, says Summit Realty Group.

The Arts Commission reduced its space from 4,017 to 2,575 square feet with the move from the ISTA Center, at 150 W. Market St., to the Government Center.

The reduction came from using cubicles instead of enclosed offices for some employees and giving up a large conference room, said Executive Director Lewis Ricci.

The hardest part of the move was having to hand-carry glass art objects from the old office to the new one, he said.

The state is fitting the newcomers into the Government Center complex in part by squeezing work places closer together, to less than 200 square feet of work space per office worker, Everson said.