As budget talks continue in Washington, the commercial real estate industry throughout the Metro South area of Boston seems to be holding its breath. While hope remains for a political compromise, some Boston area businesses are attempting to gauge the worst-case scenario.

Status of Boston’s Commercial Real Estate Market Today

Before we take a peek over the edge, let’s enjoy the view that we have for a moment. According to the National Association of Realtors ®  quarterly commercial real estate forecast, Boston’s final quarter of 2012 is as follows:

  • Office vacancies: 14.3%
  • Industrial vacancies: 20.1%
  • Retail vacancies: 7%
  • Multi-family vacancies: 3.5%

Compared to national commercial real estate averages, Boston has better performance in office, retail and multi-family sectors, but shows higher vacancies when it comes to industrial properties.

How the Fiscal Cliff Could Impact Boston Commercial Real Estate

Now let’s peek over the railing, and see what industries are likely to be hardest hit by the worst-case, fiscal cliff scenario. According to study by George Mason University published in July 2012, the automatic Federal spending cuts and tax increases that are scheduled to take effect Jan 2, 2013 would cause:

  • Reduction of the nation’s Gross Domestic Product by $215 billion dollars
  • Decrease in personal earnings by $109.4 billion dollars
  • Loss of approximately 2.14 million jobs

Here’s what the report says about the effect of the Department of Defense spending cuts alone, as they relate to a percentage of job losses by industry:

  • Architecture and Engineering: 12.3%
  • Business and Finance: 10%
  • Office and administrative support: 12.8%
  • Production: 9.4%
  • Management: 7%

How big of a share of job losses could Massachusetts expect? The State labor income losses from both Department of Defense and non-DOD cuts could amount to 3.097 billion dollars for fiscal years 2012 and 2013.

Stepping Back from the Ledge

If the above worst-case scenarios came to pass, the commercial real estate market in Boston’s Metro South area could expect a hit across the board, with office vacancies shouldering the brunt. All this being said, remember that budget talks are still in discussion, and economists largely agree that both sides will come to a consensus before the deadline.

No matter what materializes out of the current talks in Washington, it will be less painful than allowing the nation to plummet over the fiscal cliff. In future posts, we’ll take a look at the budget proposals on the table and what they could mean for commercial real estate.

Until then, don’t let speculation drive your decisions; control what you can and move forward. As your experienced commercial real estate agent in Boston’s Metro South area, I can provide you with a host of options for property leases and purchases to suit your business needs. Give me call, and I’ll show you the excellent facilities we have on the market today.

Jay Nuss
Jay Nuss Realty Group, LLC
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