Donald Trump is the President-Elect. Depending upon your views, this could be a great thing, or a very discouraging one. Regardless of how you feel about The Donald, his rhetoric on the campaign trail combined with some historical trends can give insights into what may be happening during his presidency with regards to Commercial Real Estate.
Over the last 70 or so years, a trend of recession usually occurs during the first year of a new president’s tenure. This is often due to the implementation of fiscal policy changes which tend to be more blunt than nuanced. As the administration settles in, the myriad of relationships between regulatory agencies, markets, and foreign and domestic policy goals will normalize which generally helps the economy normalize as well.
Trump and The Fed
However, with Trump, uncertainty rules the day. No one knows for certain how he’ll influence the Federal Reserve, what his policy decisions will be, or how he and his administration will impact the economy.
Due to the strong jobs market and generally positive economic indicators, it is unlikely that the Federal reserve will raise interest rates in December, and analysts expect one interest rate hike, if any, over the next three Fed Board meetings.
Capital markets will be holding their breath, and this means that new construction might slow. If capital markets do take a shock due to the election results, appointees, or new policy initiatives, construction financing could be hard to come by.
Due to Trump’s protectionist rhetoric, many foreign investors are eager to invest in real estate as soon as possible, fearing potential restrictions in the future.
This same rhetoric might affect the risk tolerance of foreign investors who have started investing in secondary and tertiary markets, making them pull back to first tier coastal markets alone. We may be looking at an opportunity for domestic investors to snag promising investment opportunities.
The Bottom Line
The Trump administration brings with it a high level of uncertainty, given President-Elect Trump’s lack of political record. It is unlikely that his policies will specifically impact commercial real estate, but it is highly likely that the economy will decline in the first year he’s in office. Economic growth will be impacted, and therefore commercial real estate will be indirectly affected.
Most importantly though, will be the Federal Reserve’s rate hike. While this rate hike will most strongly affect home builders and the growth of new homes, raising interest rates makes for a more difficult borrowing environment.