2010 Midterm Election Results Impact on the Economy and Corporate Real Estate

I know, I know…in business; the two things you never should discuss are religion and politics.

But, with the possible impact Tuesday’s (November 2^nd) midterm elections may have on the economy and corporate real estate, its worth stepping up to the ‘electronic water cooler’ to talk about it.

Historically, midterm elections, no matter the outcome, have had significant bearings on public policy, both foreign and domestic. In 2010, many of the current administration’s policies, from the budget deficit and health care to waging war, will likely be adjusted to come in closer alignment with the new, post-midterm political landscape. With control now moving to the House Republicans, the pressure will be on to undue some of the Administration’s policy initiatives (healthcare reform, spending and long term tax cuts).

 The Republicans key task will be to take decisive action in creating policies that get the economy back on track while avoiding the possible partisan bickering that may occur. They have a two-year window to win the hearts and minds of the American people and show results. The Democrats will have to defend their own policies and craft new ones to counteract the significant gains Republicans have made while having the Senate and the President’s veto to override any progressive legislation…the winners in this possible gridlocked, stalemate? I hope will be the economy and the American people. And, given the significant gains Republicans made in Governorships we may see more pro-business initiatives at the state level as getting the economy moving should become priority #1 for all elected officials at all levels.

In a recent article from the Brookings Institute entitled, “The Next Real Estate Boom” (November, 2010 – Christopher B. Leinberger, Visiting Fellow, Metropolitan Policy Program and Patrick C. Doherty, Director, Smart Strategy Initiative, New America Foundation) they ask the questions,

“What if there were a new economic engine for the United States that would put our people back to work without putting the government deeper in debt? What if that economic engine also improved our international competitiveness, reduced greenhouse gases, and made the American people healthier?

At a minimum, it would sound a lot better than any of the current offers on the table: stimulus from the liberals, austerity from the conservatives, and the president’s less-than-convincing plan for a little stimulus, a little austerity, and a little bit of a clean-energy economy.

The potential for just such an economic renaissance is a lot more plausible than many would imagine. At the heart of this opportunity are the underappreciated implications of a massive demographic convergence. In short, the two largest demographic groups in the country, the baby boomers and their children—together comprising half the population—want homes, commercial space and work environments in neighborhoods that do not exist in anywhere near sufficient quantity.”

The reality is that real estate has caused two of the last three recessions, including the Great Recession we’ve just gone through due to the fact that real estate (residential, commercial, and industrial) and the infrastructure that supports real estate (transportation, sewer, energy, etc.) represent 35% of the economy’s asset base.

To accelerate the economic recovery now slowly underway, the real estate sector must once again play a central role in the economic recoveries as it has in past recessions. The United States will be stagnated with high unemployment and sluggish growth if 35% of our asset base is not engaged. And, the hundreds of billions of dollars in potential capital investment needs to respond to the emerging market signals.

The implications of Tuesday’s elections on the economy pose challenges and opportunities for companies who hold or lease real estate (land and buildings) which may or may not be “on trend” to the shifting needs and wants of the awakening market.

For those companies who are beginning to be on the uptick based on increases in consumer spending, stronger performance of the stock market and near record profitability figures should anticipate the hiring of new employees. Corporate Real Estate departments should be poised to deliver work environments that incorporate “office of the future” dynamics that will contribute in recruiting top talent with spaces conducive for productivity and located in areas where these new employees want to be. In addition, to maximize profitability margins they must be operated efficiently to achieve occupancy cost reduction and environmental sustainability goals.

The keys for CRE professionals will be to:

• Inventory available space and identify vacancies for growth
• Seek out senior managers to determine their work force growth projections
• Dispose of properties that are no longer the ‘right space in the right place’ to meet desires and life needs of a changing population…”walk-able urban” settings are more attractive than “car-dependent” suburban office parks
• Anticipate the changes in the lease accounting standards when evaluating future rent obligations
• With the oversupply and limited demand now is your best chance to negotiate favorable terms for leasing or aquisitions
• Maintain the discipline of occupancy cost reduction to help the organizations you support emerge with a greater degree of profitability
• Research “smart growth” zoning codes for your owned facilities that reward energy efficiency (Note: The U.S. Green Building Council estimates that new sustainable developments could reduce water consumption by 40 percent, energy use by up to 50 percent, and solid waste by 70 percent…”you don’t pay for what you don’t use”)

The hope is that the newly constituted collection of politicians now in power with Tuesday’s elections is that they adopt business friendly, smart growth, and energy-efficient policies that enable companies to achieve a greater degree of profitability, bring down unemployment and reward their employees with work spaces that enhance productivity and appeal to their life needs.

How do you believe the results of Tuesday’s midterm elections will impact the economy and corporate real estate?