The recommendation to reduce the federal workforce by 10 percent, or 200,000 jobs, would cut the need for office space.
It's as simple as that.
"DC's office market fundamentals, in particular, have benefited from growth in federal payrolls and related private sector jobs. Even in other markets, there is some evidence that GSA-tenanted office buildings trade at a premium (tenant credit quality matters a lot these days)," notes Sam Chandan of Real Capital Analytics. "Ultimately, the impact on fundamentals and property values would be concentrated in the one market that would stand to lose a meaningful share of total office space demand, i.e. Washington, DC."
DC surely has the highest share of federal workers, but CoStar estimates it's still only 17 percent of the total 3.6 million employees, so the pain would surely spread outside the district. But then take $100 billion out of defense spending, and you're obviously reducing employment in local markets that are heavily dependent on defense. Much of that is also in DC, and beyond.
Now here's one you might not have thought of: If you scrap the mortgage interest deduction on mortgages over $500,000 (currently it's capped at $1 million), then you reduce consumer wealth, which in turn reduces consumer spending, which in turn reduces retail space demand.