How the election may affect the commercial real estate industry

The presidential election has the country riveted and divided on several fronts. When it comes to the real estate front, the upcoming election is likely to affect the commercial  real estate and residential real estate industry. The economy is still in one of the slowest recovery periods of the past five decades and this has economists scrambling to analyze the outlook for the economy in the long-term. Economic factors and political turmoil can affect the real estate industry in various ways and understand these ways can help create an effective strategy for the changing real estate landscape.

Underproduction in single-family housing sector

Since the start of the latest economic recovery period in 2010, the gross domestic product (GDP) has only increased by under 15%. The GDP is a strong indicator that measures the health of the country’s economy and that under 15% recovery is the weakest in many years. One of the factors contributing to this weak recovery is the underproduction in the single-family housing sector. Although the sector has bounced back in the past and helped drive economic growth, that’s not happening this time. This issue in residential real estate can influence the commercial real estate as property ownership struggles to recover. While people still want to own homes and commercial properties, the low-interest rate makes it difficult to save for a down payment.

Positives for the industrial sector

Despite the weakness in the single-family housing sector, the commercial real estate market is doing slightly better. The industrial sector of commercial real estate has been an improvement in the first half of 2016 as rent values rose above average, construction grew and the demand remained strong. A key investment that led to this boost for the commercial sector was the Panama Canal improvements and this bodes well for real estate in the southern area of the country. The industrial sector of commercial real estate may reach new peaks in value with this high level of construction.

The presidential election factor

The upcoming presidential election and the uncertainty and controversy surrounding it cast a shadow over the real estate market. Predictions don’t see negative growth from the vote, but it’s likely that there will be less positive growth. This positive growth diminishment could lower the GDP growth to .25-.5% and this will affect real estate in some manner. Commercial real estate may experience some changes in the office sector as companies wait to sign new leases until the final votes of the election come in and the country has a new president. Multifamily and retail sectors may see even less effect, as regardless of the presidential outcome, income and jobs will remain to support demand in those markets. Another factor supporting demand in the retail and multifamily commercial real estate sectors is lower rates of unemployment. Good economic strength is indicated by an all-time low of weekly unemployment insurance claims. This low number of claims indicates a stronger economy as does the highest employment rate since the Second World War

Scrutiny of real estate business

The long-term outcome of the presidential vote has a direct link to Donald Trump. His real estate business involvement may bring more interest in the effect of tax regulations on real estate. The tax situation after the election won’t change much until 2018 as the new president uses 2017 to develop and implement new policies and adjustments. This may have a negative impact on small businesses that specialize in the commercial real estate if they don’t have the income to invest in tax specialists that can aide their understanding and adaptation of new regulations. Any new rules set out by the president may influence current office projects and developments as this commercial sector have longer construction times.

Believing in the markets

Regardless of who wins, both presidential candidates believe in the markets and will likely bring changes to real estate. The pro-market beliefs of Clinton and Trump can be good for the economy and are different from Obama’s essential distrust of the markets. No matter the presidential outcome, the United States doesn’t have to worry about a real estate impact of the magnitude of the United Kingdom’s Brexit as they have one of the strongest economies alongside Australia and Canada. Effects on small to medium business property owners

The election may have a significant impact on residential real estate, but it’s unlikely that commercial real estate will experience a direct impact. One of the reasons for this is that commercial real estate uses local government to determine zoning taxes and regulation changes. From the time of the most recent recession, property values continue to increase while employment continues to recover, although slowly. Commercial real estate markets and business owners could be vulnerable to the initial instability of a new president. The election is currently negatively affecting growth due to the uncertainty of the economic impacts. Statistically, businesses reduce leasing activity during election years and hesitate to make decisions about renegotiating or renewing leases. This caution on the part of property owners is understandable as the time of the election approaches and the political turmoil remains. Property owners and renters are waiting to see how the election plays out before making any big decisions and this has caused a temporary leveling off of sale prices and rental rates. Tenants and property owners of commercial real estate may seek to lock-in long-term leases in the case of a possible recession after the election but the candidates’ belief in the strength of the markets casts doubt on such a downturn.

Despite the uncertainty of the presidential election and its possible effect on commercial real estate, there has been significant growth in the economy since the time of the recession. Even slow growth indicates a recovery for the U.S. economy and that makes analysis hopeful that political changes won’t have a detrimental impact on commercial real estate. At this point, analyzing date from past presidential election years can only paint a partial picture of what will happen after the country elects a new president.