Examining Federal Budget Cuts' Impact on CRE

http://www.reit.com Federal budget cuts will ultimately impact the commercial real estate industry, according to Chris Macke, senior real estate strategist with CoStar Group. Macke sat down with REIT.com to explain the possible impact. He noted that while the federal budget has tripled from 1969 to 2009, federal payrolls have actually shrunk by 30 percent.

"So, what that means is that all of those federal dollars went to the private sector. As a result of this, as we cut back federal spending, that means there is going to be a far greater impact on private sector jobs than people realize. It will have a far greater impact on commercial real estate," Macke said.

He added that uncertainty looms as to why corporate America has been restrained today when it comes to hiring. While some say it's the result of "anemic demand," others contend it is because of prolific spending on the part of the government, according to Macke.

"If it's because of reduced demand, we probably won't see an uptick, because were taking $2.7 million in spending from many of the corporations' largest customers," he said.

Although the exact details of the budget cuts are unknown, Macke said certain parts of the country, such as Washington and Norfolk, Va., with a high exposure to the defense industry may be hit the hardest when it comes to job losses.

"There are other markets like San Antonio, San Diego, Baltimore and Tampa that have a high exposure to the defense industry, more than some people realize," he said.

In terms of the most pressing issues in today's commercial real estate market, Macke said it's definitely all about jobs. He added that while there are other issues, like the hiccup in the CMBS market, the key issue for the commercial real estate industry is an issue of jobs.

"I have a proposal, in this cycle in real estate we should change from 'location, location, location' to 'jobs, jobs, jobs,'" he said. "We live and die based on the rest of the economy, and the rest of the economy is driven by jobs. That really is the primary issue at this point in the commercial real estate cycle."

By Carisa Chappell

Category:

News & Politics

Tags:

• REIT
• REITs
• NAREIT
• real estate investment
• federal budget cuts
• budget defecit
• commercial real estate
• Chris Macke
• CoStar Group
• Carisa Chappell
• economic recovery
• real estate fundamentals
• CMBS market
• givernment spending
• impact on real estate prices