Hiring Freeze, Potential Spending Cuts Don't Dampen DC Office Landlords' Trump Optimism

Since the day after the election, DC office landlords, brokers and experts have expressed optimism about what President Donald Trump will mean for the local leasing market. Now, with his policies beginning to take shape — including a federal hiring freeze and $10.5 trillion in potential spending cuts — they still have a positive outlook. 

In his first 11 days, Trump has signed a flurry of executive orders aimed at implementing his campaign promises. One of particular importance to the DC market is the federal hiring freeze he instituted on his first weekday in office. His administration is also considering dramatic federal budget cuts, aiming to reduce spending by $10.5 trillion over the next 10 years. 

Akridge CEO Chip Akridge said he supports cuts in government spending to grow the private sector, but he thinks Trump's plan is overly ambitious. 

"I can’t understand how that’s going to be accomplished," Akridge said. "It’s great to say that to make a point, but the devil is in the details. How are they going to get to $10 trillion? They’re not going to cut defense. What are they going to cut?"

Early proposals show the bulk of spending cuts would come from the State Department, Justice Department, CIA, Commerce, Transportation and Energy, The Hill reported, all of which have major footprints in the DC market. The proposals would also privatize the Corporation for Public Broadcasting and eliminate the National Endowments for the Arts and Humanities. 

"Clearly, when you hear talk of programs, or even wholesale federal agencies, folding or seeing their missions greatly reduced in scope, that’s not a good thing for office demand," JLL U.S. director of office research Scott Homa said.

Homa said the submarkets most affected by cuts in federal spending and footprint reductions, which have been taking place for years, tend to be higher-priced areas like the CBD and East End. Lower-cost markets like NoMa, Capitol Riverfront and Southwest DC have benefited from the efforts to reduce federal spending on real estate, he said. 

While the cuts may hurry the pace of the federal government shrinking its footprint, Brookfield senior vice president Dave Bevirt said those reductions could be made up for by spending in other areas. He said Trump's early focus on defense and border security may be signs those sectors will increase their demand for real estate in the area. 

"Increased defense spending could be a big win for the region, specifically NoVa," Bevirt said. "Anything defense- or homeland security-related, certainly you’re going to see an increase in focus and budgets toward things related to homeland security, border control, ICE and defense."

Transwestern executive managing director Phil McCarthy said Trump's talk about infrastructure spending could help improve Metro and get the Purple Line project moving, both important engines for development in the area. 

"Certainly infrastructure investment is good for us," McCarthy said. "What’s a little scary about infrastructure investment is a risk that demand for resources could drive up cost, so you have an inflation factor there."

McCarthy had a positive spin on the hiring freeze, noting that it will mean more money going to government contractors, which will boost demand in the NoVa and suburban Maryland markets. 

"The combination of investment and the hiring freeze together will actually be good for us," McCarthy said. "Experience tells us in the past when there have been hiring freezes, they have gone to contractors to execute the work. That’s how the government has completed its mission and I expect that to happen again."

NGKF senior managing director Greg Leisch said the disconnect he sees between Trump and the Republican Congress, plus the possibility of the Democrats taking control in 2018, make the chances of instituting budget cuts of this scale very unlikely.

"It's not going to happen over 10 years; Trump has a honeymoon for two years and that’s it," Leisch said. "How much he can accomplish in those two years, considering he isn’t aligned with the Republican Congress, I don’t know."

Akridge, who earlier this month said he thought Trump would make the government more effective, said he remains hopeful but the events so far have shown him it won't be easy for the new president.

"I think some of the things that happened over the last week goes to show how difficult and slow it will be for him to have ay real impact on the way things are going," Akridge said.