Tenant Representation and Commercial Real Estate

The President’s Deficit Commission has recommended spending cuts that could drastically change commercial markets in Washington DC and other major cities.

The government is a major tenant in many large cities and the Commission has recommended cutting up to 10 percent of the federal workforce which accounts for roughly 200,000 jobs. In order to understand the amount of space that represents, let’s say that there is an average of 180 square feet per employee which covers executive offices, conference rooms, desks, cubicles etc … it makes the total square footage around 36 million. Additionally there are calls to cut tens of billions from defense spending which would add additional empty space.

Washington DC would likely be the hardest hit area since it has the highest proportion of federal employees but other major markets would be adversely affected. Obviously any cutbacks would be phased in over time but the loss of quality tenants would hurt landlords and lets not forget that this would add to the unemployment roles.

Hopefully the government does its homework before making any drastic decisions but its obvious that any solutions to the budget gap will be controversial but need to be made to preserve our financial future.

According to research firm Moody’s, prices for commercial property increased 4.3 percent in September but prices remain more than 40 percent off their peak reached in October of 2007. The increase was the highest ever in the decade that the firm has been tracking prices and represents a growing confidence in the recovery by firms who are in a position to acquire property. However the numbers are somewhat skewed because of high sales prices for landmark office properties and do not necessarily reflect the entire market as a whole.

Even with the increase in prices, vacancy rates remain high throughout the country and are not expected to see a significant decrease in 2011.