Will the looming fiscal cliff — a phrase famously coined by Ben Bernanke, chairman of the Federal Reserve — doom the office sector to a huge fall? Will it boost the unemployment rate, lessening the need for office space across the country?
These are the questions that Cassidy Turley asks in its latest white paper, “Will the office sector fall of the fiscal cliff?”
The quick answer to these questions? Probably not.
But no one really knows.
Here’a s quick history of the fiscal cliff: In August of 211, a so-called “Super-committee” of elected officials formed to do one thing, recommend fiscal policies to reduce the country’s deficit and boost its financial sustainability.
This being Congress, the comittee failed. Because of this, the federal budget is scheduled to be automatically reduced by $984 billion during the next 10 years. Of these cuts, 50 percent are to be borne by defense and the remaining 50 percent by other programs.
At the same time, the Bush-era tax cuts are scheduled to expire on the same day, Jan. 2, 2013, that the automatic budget cuts are due to start.
Bernanke named tagged this scenario the fiscal cliff, and it’s certainly a situation that makes rational observers of our federal government wonder if the two political parties are really willing to throw the country into chaos rather than reach a compromise solution.
The good news? Cassidy Turley analysts estimate that Congress is more likely to reach a compromise than they are to allow the country to tumble over Bernanke’s fiscal cliff.
Let’s hope Cassidy Turley is right. The company’s white paper cites research from the Congressional Budget Office showing that if the fiscal cliff scenario is allowed to happen, the nation’s deficit would fall by $641 billion in 2013. That’s about the only good news. Cassidy Turley anaysts write that the country wold have to raise taxes and cut spending so much that it would create a drag on growth. The country’s real gross domestic product would shrink 3.9 percent in the first quarter of 2013 while the unemployment rate would rise to more than 9 percent by the end of that year.
According to the white paper, Capital Economics, a research group based in Toronto, put the odds of the fiscal cliff happening at 30 percent.
Cassidy Turley said that the office sector in several Midwest markets would be hit especially hard if the fiscal cliff is allowed to happen. These markets include Knoxville, St. Louis, Nashville, Cincinnati, Indianapolis, Chicago and Detroit.
Cassidy Turley estimates that if the cliff is allowed to occur, demand for office space in the United States would cause a negative 2.6 million square feet of net absortpion in 2013. Office vacancy rates would rise by 20 basis points.
It’s important to keep in mind that Cassidy Turley and Capital Economics both believe that there is a 70 percent chance of the fiscal cliff scenario not happening.
Of course, with how dysfunctional Congress has been in recent years you can’t blame office professionals for worrying.
– Dan Rafter