Republicans aren’t the only casualties of the 2006 elections, reports Jennifer S. Forsyth with the Wall Street Journal. Political gridlock could turn into real estate gridlock as federal agencies and federal contractors hold off signing long-term leases. Contractors also have reason to worry about curtailed spending on the defense, intelligence and homeland security sectors that boomed during Republican rule.
The blizzard of new offices due to come on line will hurt developers’ prospects in the overall Washington market. More than 16 million square feet of office space is under construction in the area, with some of it expected to be ready by mid-2007, according to Stephen Fuller, director of George Mason School of Public Policy’s Center for Regional Analysis. Tenants will lease only about four million of that this year, he predicts. “Everyone is building and very little of it is preleased,” Dr. Fuller says.
Aggravating the overbuilding: The surge in federal procurement is slowing. Procurement in the region was up 16.9 percent in 2003 and 19 percent in 2004. The 2005 numbers aren’t in yet, but Fuller expects an increase below the decadal average of 8.8 percent. Procurement growth could slow even more next year as Democrats set new budgetary priorities.
A bursting of the Northern Virginia office bubble would have many ramifications, which we’ll try to explore in this blog as they unfold. They include: (1) Less job creation and a slowdown in the in-migration of people to fill those jobs, with an easing of growth-related pressures on local governments; (2) Less tax revenue for state coffers, perhaps bringing an end to the state’s chronic budget surplus; (3) a collapse in commercial building sector to accompany the slowdown in residential building, with consequent loss of blue collar jobs, and (4) moderating costs for construction, reducing risk of cost overruns on the Rail to Dulles project.
