As someone who is constantly reviewing financial information, I know one simple rule, don’t buy something you can’t pay for. It seems simple enough but the Federal government hasn’t been following this rule for decades. We are now at a point where we recently assembled a commission to come up with policy suggestions to cut spending and ultimately lower our deficit.
While I appreciate the proposals and think they are well thought out, if implemented, they would produce an incredibly negative effect on the commercial real estate market.
There are two items that I am specifically referencing:
- Cutting defense spending by $100 billion
- Reducing the federal workforce by 10 percent
While its important to review spending and look for ways to optimize efficiency, each proposal could devastate the commercial real estate market. Obviously reducing the federal workforce by 10 percent would result in cuts of at least 150,000 to 300,000 jobs. If we say that the average amount of space allocated per employee is 200 square feet (keep in mind space for hallways, conference rooms, executive offices) then we’re looking at a loss of up to 60 million square feet of space.
Furthermore cutting defense spending would produce even more losses as contractors would have to cut back on space and each proposal would hurt landlords in the DC area and beyond.
I realize the precarious financial position that our country faces but I think that any cuts should be thoroughly reviewed and phased in over time to allow any negative market reactions to be absorbed gradually rather than a large shock that would produce a destabilizing affect in the market.