Q2 2012 Suburban Maryland, Maryland Commercial Real Estate Economy

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Q2 2012 Suburban Maryland, Maryland Commercial Real Estate Economy

Sequestration, the large federal spending cuts that will go into effect early next year if a deal cannot be reached on the national budget, is looming over all the local economies of the entire Washington, D.C. Metropolitan Statistical Area (MSA), and Suburban Maryland is no exception. While some think the threat of cuts is enough to make opposing parties achieve a compromise, others are not so sure. Writing in the Washington Business Journal, Marion Blakey, President and CEO, Aerospace Industries Association, notes that “it is Washington conventional wisdom that sequestration won’t happen—that both parties are just playing a game of chicken that will be resolved in the nick of time. Unfortunately though, time is running out. The reality is this: As of now, $1.2 trillion will be trimmed from the federal budget, and companies and federal agencies are making negative hiring, investment and procurement decisions based on what the law of the land tells them will happen come January 2. Any post-election fix will come too late to undue damage already done.” Citing a report conducted for the Aerospace Industries Association by Dr. Stephen F. Fuller, Blakey points out that Maryland is on line to lose 114,795 jobs if the cuts go through.

With a federal showdown looming, the latest Current Employment Survey (CES) data from the U.S. Bureau of Labor Statistics (BLS) show moderate growth. For the 12 months ending in June 2012, CES data show an anemic increase of 1,300 non-farm jobs (0.1%). This is not a very good showing, and is not helped with the issue of sequestration very much part of the picture. The Bethesda-Gaithersburg Metropolitan Division, saw an increase of 4,200 non-farm jobs, while the Calvert-Charles-Prince George’s area saw non-farm employment decrease by 2,900. The Calvert-Charles-Prince George’s area is generally considered to have a more blue-collar employment orientation while the Bethesda area is more white-collar. However, aside from sequestration, the BRAC (Base Realignment and Closure) process is another source of concern for Suburban Maryland. The Washington Business Journal reported in September that BRAC’s overall legacy is “more jobs and office leases,” that has brought “a deluge of federal jobs and defense contracting positions to Maryland bases,” but “in some cases the full effects have yet to meet the original expectations.” BRAC officially ended in September 2011, but overall, it is expected to be a major driver for the Maryland economy. For the entire Suburban Maryland metro, BLS data indicate only a few bright spots. Professional and Business Services employment increased by 1,400 jobs (0.8%) and the largely government-funded Education and

Health Services sector saw an increase of 2,900 jobs (2.5%). Retail Trade posted an increase of 1,000 jobs (0.9%) and, at a time when government employment has been reduced as localities seek ways to lower costs, Government sector employment has increased by 1,200 jobs (0.6%) in the 12 months ending in June. All the other employment sectors were flat or lost ground. Compared to previous Reis Observer reporting on this market, the latest 12-month period can, at best, be described as a holding pattern for regional employment.