NORTH AMERICA – Cuts in US federal procurement spending of almost 10% will have a "massive impact" across 30 major urban centres even if the US pulls back from the fiscal cliff, according to an impact assessment report from consultancy Cassidy Turley.
In addition to increased vacancies in office directly leased by the government – which accounts for 3.3% of national stock – the biggest hit would come from significant layoffs at government contractors that make up major tenants in several urban areas.
If discretionary spending on contractors is cut as predicted next year, the report estimates overall vacancies could increase by 18.7m square feet (5.7m square metres) as a result of cutbacks by just the top 100, which account for 66% of procurement spending.
The good news, it said, is that policymakers are likely to act decisively to change the current law in order to avoid the economy heading back into recession in Q1 2013.
The report's authors described as "irrationally pessimistic" the worst-case fiscal-cliff scenario.
But they warned that, were the US to reach a fiscal cliff, 23 of the 30 metropolitan areas measured by the report would go into recession at some point next year.
"It is equally irrational to assume that fiscal policy will be anything other than a drag on US economic growth – at least for the next few years," they added.
"Under the fiscal cliff scenario, cuts in federal spending would take their toll, by varying degrees, on sentiment across all metros.
"It is reasonable to assume that most metros would experience at least some decline in consumer spending and consumer confidence."
In some "metros" – including Atlanta and Baltimore – the fiscal drag could result in a return to vacancy rates close to 20%.
However, Washington DC is by far the most vulnerable area covered, with the government or government contractors leasing almost a quarter of the area's office space.
Although the report believes recession in the capital is unlikely, it acknowledged: "With respect to the fiscal cliff, the Greater Washington DC region obviously has a bulls-eye stamped on its back."