2010 Mid-Term Elections:

Implications for Commercial Real Estate

November 2010

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
US Total Public Debt Outstanding expire on December 31, 2010. Extension of these tax cuts will have a significant impact
on future federal income projections. Federal receipts decreased from 2001 to 2003
$16,000,000
$14,000,000
following the implementation of President Bush’s tax cuts, but have risen 4.3% annually,
$12,000,000 on average, since 2003. Though no definitive decisions have been made by Congress,
billions $

$10,000,000
$8,000,000
it appears that some form of continuing tax cuts will be implemented, at least in the
$6,000,000 short-term.
$4,000,000
$2,000,000
$0 There is no doubt that federal spending plays a significant role in the US economy.
Federal outlays currently account for an estimated 19% of national GDP. Federal
Ja -80
Ja 82
Ja -84
Ja -86
Ja 88
Ja -90
Ja 92
Ja -94
Ja -96
Ja 98
Ja -00
Ja -02
Ja 04
Ja -06
Ja -08
10
n-

n-

n-

n-

n-

n-
n

n
n

n
n

n
n

n
n
Ja

spending continues to grow. Over the past year, federal outlays increased 2.7%
Sources: Bureau of the Public Debt Online, Moody’s Analytics
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.
Federal Government Receipts & Outlays Large programs, such as defense, are targets for spending cuts. Funding for specific
(in constant FY 2000 dollars) programs significantly impacts procurement expenditures for private sector contractors.
Additionally, changes in federal government employment affect the private sector.
$3,000 25% History shows that 1.1 to 3 contractor jobs are created for every federal government job.
24%
$2,500 23% Depending on how aggressively Congress implements spending cuts, locations that rely
$2,000 22%
billions $

$1,500
21%
20%
heavily on federal contracting could be strongly impacted.
19%
$1,000 18%
$500 17% Looking back over the past 25 years, a divided or unified government has not made
16%
$0 15% a significant impact in federal spending. The Federal Government has continued to
e

e
90

92

94

96

98

00

02

04

increase spending, regardless of political party control. The main issue continues to be
06

08

10
19

19

19

19

19

20

20

20
20

20

20

Receipts Outlays Outlays as Percentage of GDP which federal programs or initiatives are retained or cut.
Sources: Government Printing Office (GPO)
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 office lease in Washington, DC in
anticipation of increased employment for financial oversight and consumer protection.

cassidyturley.com | 1
 2010 Mid-Term Elections:
Implications for Commercial Real Estate
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 financial reform could affect the medical, IT, accounting, and legal
sectors, driving demand for office 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 office-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 five years. However, there is the likelihood that national office employment will
continue to decline for the next two to four quarters if the economy is slow to recover.
Divided Government Doesn’t Matter
Change in Total Federal Outlays
Implications: Decisions made by a split government regarding additional financial
stimulus and public spending will impact employment projections. Chances are many
12.0%
11.0% major decisions will not happen in the near-term with a divided government. As a result,
Year over Year Change

10.0%
9.0%
8.0%
7.0% Republican
this may only delay decisions by some companies to hire new employees and acquire
Controlled
6.0%
5.0%
House additional space.
4.0% Democrat
3.0% Controlled
House
2.0%
1.0%
0.0%
Shaded Bar =
Opposite Party
President
A “lame duck” government may also hinder improvement of consumer and business
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008

confidence. Business and consumer confidence have demonstrated to be highly

Reagan Bush I Clinton Bush II Obama
correlated with employment and office space demand. Prolonged levels of low
Sources: Government Printing Office (GPO), Cassidy Turley confidence will only delay a full recovery in the commercial real estate markets.

Nonetheless, national office-using employment will add an estimated 3.7 million jobs
over the next five years. This equates to 550 million to 925 million square feet of
demand for existing or additional office space.

National Office Using Employment (SA)

29
Millions Employed

27
25
23
21
19
17
15
20 Q1
20 Q1
20 Q1
20 Q1
20 Q1
20 Q1
20 Q1
20 Q1
20 Q1
20 Q1
20 Q1
20 Q1
20 Q1
20 Q1
20 Q1

1
Q

Disclaimer
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
20

This report and other research materials may be found on our website at www.cassidyturley.com. This is a
Source: Bureau of Labor Statistics, Moody’s Analytics 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.

cassidyturley.com | 2