The election of Donald Trump represents the culmination of one of the most improbable paths to the United States presidency that could have been imagined. Many questions remain regarding the impact his presidency will have on commercial property markets.
What is known? Mr. Trump will be the 45th president of the United States and, in a general sense, his victory could represent a potential departure from orthodoxy in key elements of U.S. foreign and economic policy.
Economic Impacts
Mr. Trump has made several proposals that could benefit the economy—and thus commercial real estate—and a few that could adversely affect property markets. These include:
- Increased defense and infrastructure spending.
- Potential tax reform/lower taxes on businesses and individuals.
- Reduced business regulations.
- Repealing and replacing "Obamacare."
- Tighter border security.
- Possible renegotiation of trade deals and imposition of tariffs.
Real Estate Translation
With more expansionary fiscal policy, and if Mr. Trump's trade positions are moderated, growth projections could see some upside potential over the short term. Such a scenario will support already improving commercial real estate market fundamentals and rental growth.
Expansionary fiscal policy would stimulate economic activity and drive real estate demand. With unemployment already low, this will put upward pressure on wages, which will feed through to inflation as the labor supply becomes more constrained. This dynamic may also increase labor force participation rates and will put upward pressure on bond yields and interest rates. Although the potential for adverse financial market reactions could potentially delay an expected Fed rate hike in December, the likelihood of increased fiscal stimulus creates the possibility of more rate hikes than currently anticipated.
One of the primary potential economic risks from Mr. Trump's presidency would be a more insular trade policy. Given the fact that Congress has granted the president a tremendous amount of leeway with regard to trade, it will remain an important area to watch. This is particularly true in U.S. commercial real estate markets where large multinational service providers operate, and in industrial and logistics markets that support the flow of goods in and out of the country.
President Trump and the Republican Congress
It should be noted that President-elect Trump will have to deal with Congress. Although Republicans retained majorities in both houses, Democrats still have the ability to slow or even stop legislation in the Senate due to the fact that 60 votes are required to end debate for many types of legislation. However, budget-related legislation can usually be enacted with a simple majority vote.
With Republicans leading Congress, the new president can bring his agenda up for votes and use procedural maneuvering to further it along. Yet there are also some Republicans who will be less inclined to support more controversial policies. In short, Mr. Trump's proposals are likely to be tempered as they move through Congress. For this reason and despite an increased risk of financial market volatility due to higher levels of uncertainty, the U.S. economy is unlikely to be materially impacted by the results of the election in the near term, provided there is a reasonable amount of continuity in trade policy.
Broader Implications
Under foreseeable scenarios, real estate will remain a preferred asset class. U.S. commercial real estate has averaged a 9.1% return since 1999, according to IPD. We believe that real estate, which represents 14% of the world's investable universe, is well able to hold its value and deliver a competitive return despite these most recent changes in the political landscape.
Richard Barkham
Global Chief Economist
richard.barkham@cbre.com
Spencer Levy
Americas Head of Research
spencer.levy@cbre.com
