CRE market

CRE market hazy amidst looming Trump presidency

Thursday, November 10, 2016

In light of Donald Trump being elected as 45th president of the United States, CBRE has issued a statement outlining several of Trump’s proposals that could benefit commercial real estate, and others that could unfavorably affect property markets.

During the course of his campaign, Trump has called for increased defense and infrastructure spending, potential plans to lower tax rates on businesses and individuals, reduced business regulations, scraping and replacing Obamacare, tighter border security, and renegotiating trade deals and imposing tariffs.

Such proposals are likely to be moderated through Congress; therefore, according to CBRE, it is doubtful the U.S. economy will be substantially impacted by the results of the election in the near term, so long as trade policy is reasonably intact.

On a bright note, if Trump’s trade positions are moderated, growth projections could see some upside potential over the short term. This could result in further progress for rental growth and the commercial real estate market.

Expansionary fiscal policy would stimulate economic activity, driving real estate demand. Unemployment is low, and this will put upward pressure on wages, which will feed through to inflation as the labour supply becomes more constrained. This dynamic may also increase labour 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 interest rate hike in December, the likelihood of increased fiscal stimulus creates the possibility of more rate hikes than currently anticipated.

Trump’s victory could cause negative financial market reactions, delaying a possible Federal Reserve interest rate hike in December; however, heightened fiscal stimulus creates the potential for more rate hikes that previously forecasted.

The insular trade policies Trump touted during debates and rallies could pose an economic risk. This would be an area to monitor since Congress has offered a high degree of flexibility regarding trade. Such risk would affect 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.

For more information contact authors, Spencer Levy, head of research (Americas) for CBRE or Dr. Richard Barkham, executive director and global chief economist for CBRE.

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