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What does the commercial real estate sector have to look forward to in the coming year? Not much, if the fiscal cliff isn't averted, according to a ""study"":http://www.cassidyturley.com/Portals/0/Research/Fiscal%20Cliff%20Report.pdf from commercial real estate (CRE) services provider ""Cassidy Turley"":http://www.cassidyturley.com/.
[IMAGE]""Going over the fiscal cliff, and continuing to free-fall is an unlikely scenario, but from a real estate perspective, it's potentially a devastating scenario,"" said Kevin Thorpe, Cassidy Turley's chief economist.
The firm's baseline scenario assumes lawmakers will agree on a stopgap measure in late December or early January before the economy can take any serious damage. That measure will likely extend the Bush-era tax cuts (for some) and resume similar spending levels for a few months while lawmakers hash out a budget.
Having said that, the firm projects a return to recession in 23 out of the 30 metros tracked for its study if the tax hikes and spending cuts aren't scaled back.
[COLUMN_BREAK]The biggest impact on the commercial real estate market would come from spending cuts for government contractors.
""Government contractors are a major tenant in many office markets across the country,"" Thorpe said. ""Sequestration is essentially an immediate 9 percent drop in revenues for the government contracting world. Contractors would invariably need to cut staff, which would create numerous holes in many real estate markets.""
According to Cassidy Turley's study, the top 100 government contractors occupy a combined total of about 208 million square feet of office space in the United States. Under the sequestration scenario, those contractors would potentially shed 18.7 million square feet of office space as the government scales back spending on projects.
While dropping over the fiscal cliff would likely cause some serious problems for CRE, the firm also predicts a successful resolution of the problem could build on 2012's gains in GDP and employment, propelling the economy (and the office market) further forward.
""There is a positive script buried in here,"" Thorpe noted. ""If lawmakers can work it out, the U.S. economy appears poised to take the recovery the rest of the way. Real GDP of 2.5 percent for 2013 is attainable, and 3 percent or 4 percent in 2014 is not a stretch given the latest trends in the U.S. economy. Against such a backdrop, demand for office space could be 30 percent to 40 percent higher than it has been throughout this recovery. We just need policymakers to get it done.""
