WASHINGTON, DC-Adding to the chilling effect of government uncertainty on development that a newly published NAIOP Research Foundation report cited, Congress and the Obama administration have continued their showdown—or standoff—on the partial federal government shutdown into a second week. This will be followed by a likely battle over raising the debt ceiling. Neither event is making an immediate mark on CRE, but NAIOP president and CEO Thomas Bisacquino tells GlobeSt.com that the overhang in terms of business confidence will be with us for awhile.
“A government shutdown doesn't immediately impact commercial real estate, because CRE is such a long-term play,” says Bisacquino. “If we're partners in a development project and the project is moving forward, it doesn't immediately put ice on our confidence.
“But on the flip side, if you look at Washington from the standpoint of whether the politicians can work together and move effective public policy forward, it does start to put up a little cloud,” he continues. “It detracts from people's confidence. And if you're contemplating a $10-million project or a $10-billion project, whatever it may be, it all gets into looking down the road and being confident.” The debt-ceiling issue will be clearer next week, he adds, but while these matters may have little immediate impact, “it clearly gives people pause. And a pause is not good.”
Past the cliffhanger scenario of whether the federal government will go into default, there are also policy issues left hanging fire. “How is the treatment of carried interest going to be handled,” for example, Bisacquino says. “When you do a lease, tenant improvement is currently depreciated on the books for 39 years, but each year we have to call tax extenders, so the depreciation on tenant improvement has dropped to 15 years. That expires at the end of this year; is that going to be renewed?”
A variety of public policy issues “that impact our ability to be successful and move forward are just sitting out there, so when does it get dealt with, how does it get dealt with?” he asks. “Then we're moving into the 2014 mid-term elections, so if you think the politics are great now, wait a few months and it will kick into even higher gear.”
Even so, the numbers show an industry on the rise. “2012 was a good year compared to 2011,” says Biscaquino. As noted in NAIOP's report, US CRE development generated $303.4 billion of economic activity last year, up nearly 16% from $261.6 billion the year prior, while adding 307.5 million square feet to the nationwide total, up 29% from the new space built in '11. “But it pales next to 2007's numbers. So we are in the midst of a very strong tepid recovery. It's a good recovery, but far from where it has been at the peak.”
He points out that the rate of recovery varies among product types. “If you look at industrial in Southern California, it's as hot as a pistol,” Bisacquino says. “If you're talking about suburban office in secondary and tertiary markets, it's probably pretty cool. But if you amalgamate everything and look at it from a 100,000-foot perspective, there's no question that the industry is coming back.”
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
