2010 Mid-Term Elections:

Implications for Commercial Real Estate

cassidyturley.com | 1

US Total Public Debt Outstanding

Since World War II, the US House of Representatives has changed political parties

seven times. Last week’s mid-term elections turned the shift of political power for the

next two years in favor of the Republican Party in the House. With a divided Congress

and opposing political parties controlling the Executive and Legislative branches, there

are numerous implications for commercial real estate. Cassidy Turley Research provides

a brief outlook on the mid-term elections in relation to federal debt, legislation, US

employment, and the commercial real estate markets.

Federal Debt, Income & Expenditures: Large national debt is a hot topic for the 112th

Congress. Currently, public debt is estimated at $13.7 trillion, equating to $116,647

for every US household. The ratio of total public debt to national GDP stands at

approximately 94 percent, compared to the 30-year average of 58 percent. To address

debt, government will need to examine federal revenues and spending.

Future tax revenues will factor heavily on public debt. Bush era tax cuts are set to

expire on December 31, 2010. Extension of these tax cuts will have a signifi cant impact

on future federal income projections. Federal receipts decreased from 2001 to 2003

following the implementation of President Bush’s tax cuts, but have risen 4.3% annually,

on average, since 2003. Though no defi nitive decisions have been made by Congress,

it appears that some form of continuing tax cuts will be implemented, at least in the

short-term.

There is no doubt that federal spending plays a signifi cant role in the US economy.

Federal outlays currently account for an estimated 19% of national GDP. Federal

spending continues to grow. Over the past year, federal outlays increased 2.7%

annually, slightly higher than the 30-year average increase of 2.5%. A divided

government will need to decide how to address federal spending and determine its

impacts on the economy.

Implications: The 112th Congress is faced with a considerable amount of federal debt.

Large programs, such as defense, are targets for spending cuts. Funding for specifi c

programs signifi cantly impacts procurement expenditures for private sector contractors.

Additionally, changes in federal government employment affect the private sector.

History shows that 1.1 to 3 contractor jobs are created for every federal government job.

Depending on how aggressively Congress implements spending cuts, locations that rely

heavily on federal contracting could be strongly impacted.

Looking back over the past 25 years, a divided or unifi ed government has not made

a signifi cant impact in federal spending. The Federal Government has continued to

increase spending, regardless of political party control. The main issue continues to be

which federal programs or initiatives are retained or cut.

Legislation: In addition to debating extended tax cuts, Republicans and Democrats

will continue to deliberate major legislation such as healthcare reform and Wall Street

reform/consumer protection. The Federal Government and some private sector

companies have started to gear up for implementation of these bills, though programs

related to these bills have not been fully funded. For example, the US Securities and

Exchange Commission signed a 900,000 square foot offi ce lease in Washington, DC in

anticipation of increased employment for fi nancial oversight and consumer protection.

November 2010

$0$2,000,000$4,000,000$6,000,000$8,000,000

$10,000,000$12,000,000$14,000,000$16,000,000

Jan-8

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4

Jan-8

6

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8

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Federal Government Receipts & Outlays (in constant FY 2000 dollars)

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

1990

1992

1994

1996

1998

2000

2002

2004

2006

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2008

e

2010

e

billi

ons

$

15%16%17%18%19%20%21%22%23%24%25%

Receipts Outlays Outlays as Percentage of GDP

Sources: Bureau of the Public Debt Online, Moody’s Analytics

Sources: Government Printing Offi ce (GPO)

2010 Mid-Term Elections:

Implications for Commercial Real Estate

cassidyturley.com | 2

National Offi ce Using Employment (SA)

November 2010

Implications: The outcomes of issues such as these will affect both public and

private sector hiring and thus demand for commercial real estate. Implementation

of healthcare and fi nancial reform could affect the medical, IT, accounting, and legal

sectors, driving demand for offi ce and medical space and data processing centers.

Additionally, changes in income and capital gains taxes could affect when and how

commercial property is acquired and sold.

Employment: The national employment outlook remains mixed. Though still plagued

by a record-high 9.6% unemployment rate, US non-farm employment improved in

October 2010 by adding 829,000 jobs on a seasonally-adjusted basis compared to

a year ago. After reaching a low point in 3Q 2009, national offi ce-using employment

(mainly the Professional & Business Services and Financial Activities sectors) is

projected to improve, adding an estimated 700,000 to 800,000 jobs annually over the

next fi ve years. However, there is the likelihood that national offi ce employment will

continue to decline for the next two to four quarters if the economy is slow to recover.

Implications: Decisions made by a split government regarding additional fi nancial

stimulus and public spending will impact employment projections. Chances are many

major decisions will not happen in the near-term with a divided government. As a result,

this may only delay decisions by some companies to hire new employees and acquire

additional space.

A “lame duck” government may also hinder improvement of consumer and business

confi dence. Business and consumer confi dence have demonstrated to be highly

correlated with employment and offi ce space demand. Prolonged levels of low

confi dence will only delay a full recovery in the commercial real estate markets.

Nonetheless, national offi ce-using employment will add an estimated 3.7 million jobs

over the next fi ve years. This equates to 550 million to 925 million square feet of

demand for existing or additional offi ce space.

Disclaimer

This report and other research materials may be found on our website at www.cassidyturley.com. This is a

research document of Cassidy Turley in Washington, DC. Questions related to information herein should be

directed to the Research Department at 202-463-2100. Information contained herein has been obtained from

sources deemed reliable and no representation is made as to the accuracy thereof. Cassidy Turley is a leading

commercial real estate services provider with over 2,800 professionals in 60 offi ces nationwide. The fi rm

completed transactions valued over $13 billion in 2009, manages over 420 million square feet on behalf of

private, institutional and corporate clients and supports over 25,000 domestic corporate services locations.

1517192123252729

2000

Q1

2001

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2007

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2008

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2009

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2010

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ed

1517192123252729

2000

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Mill

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Em

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Source: Bureau of Labor Statistics, Moody’s Analytics

Divided Government Doesn’t MatterChange in Total Federal Outlays

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%11.0%12.0%

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Year

ove

r Yea

r Cha

nge

Republican Controlled House

DemocratControlled House

Reagan Bush I Bush IIClinton Obama

Shaded Bar = Opposite Party President0.0%

1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%11.0%12.0%

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Year

ove

r Yea

r Cha

nge

Republican Controlled House

DemocratControlled House

Reagan Bush I Bush IIClinton Obama

Shaded Bar = Opposite Party President

Sources: Government Printing Offi ce (GPO), Cassidy Turley