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How President-Elect Donald Trump May Impact Commercial Real Estate

Posted by Avatar Financial

How President-Elect Donald Trump May Impact Commercial Real Estate

A look at how President-Elect Trump may affect the commercial real estate industry.

How much better (or worse) could a Trump administration end up being for the commercial real estate industry? The commercial real estate industry has long played a major role in the local and national political landscape but the relationship between these two realms has never become more intertwined than today, after a commercial real estate developer with little political experience won the presidential election.

Many people are still having a hard time believing that Trump got the nomination of the Republican Party, much less became the nation’s 45th president. So what does this political upset mean for the commercial real estate market?

Initially, there was volatility in the stock market as to be expected, but things have stabilized somewhat. While it’s still too early to tell and we don’t have a comparable period in history with which to draw detailed conclusions, the following are some predictions on what a Trump presidency could mean for commercial real estate and the economy at large.

Risk of a Recession

The risk of a recession following a presidential inauguration is by no means exclusive to Trump, but if past decades have shown us anything, it is that recessions tend occur within the first year of a new president’s administration. This is typically due to the administration’s rush to implement new fiscal policies.

Trump promised numerous economic changes during his campaign, such as lower taxes and renegotiated trade deals. The new administration will need to be extremely cautious to avoid causing an economic downturn. The current economy is in a fragile state, so it won’t take a lot to cause a recession.

Volatility in Commercial Mortgage Backed Security Markets

When there is uncertainty in the economy, commercial mortgage backed security markets (CMBS) tend not to do well. It will take some time to see how it all progresses, so in the short-term, this is likely to lead to volatility as people come to terms with the election results. This could lead to a decrease in CMBS issuance.

Slowdown in Construction

There will likely be a slowdown in construction projects as the economy slows down. Real estate developers may decide to abandon new projects and prefer to take a wait-and-see approach.

Increased Investment in Infrastructure

Trump promised dramatic increases in infrastructure development to spur economic growth with his $1 trillion dollar infrastructure program. If he keeps his promise, it could lead to a construction boom and yield significant returns, including increased jobs and efficiency. There would be numerous projects vying for funding, including bridges and roads. These projects could also benefit commercial properties in surrounding areas. With the House and Senate under Republican control, it will likely reduce political gridlock and facilitate Trump’s ability to make do on his promises.

Continued Investment in Commercial Real Estate by Foreign Investors

The United States will likely continue to be viewed as a popular investment destination internationally, despite the fact that some investors might have cold feet due to the uncertainty surrounding our economic policies under Trump. Alternatively, some foreign investors might expedite deals in the United States in the coming months to avoid potential barriers to investment in the future, owing to Trump’s vocal stance against globalization.

Rising Capital Rates

Higher inflation and rising capital rates on commercial properties may result if Trump starts to enact the anti-trade policies he touted during his campaign. Unless this is accompanied by an increase in economic activity, it could have a negative effect on property values.

The immediate impact of Trump’s presidency on commercial real estate is uncertain. There isn’t enough information available right now to determine how Trump’s policies will affect the economy or to drive real estate investment strategy decisions. However, the very uncertainty that characterizes Trump’s presidency is also expected to create buying opportunities, albeit with additional risk. 

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