Trump Presidency Impacts on CRE

Impact of Trump’s Election Win on CRE

The 2024 election is finally complete, and Donald Trump is the president elect. The stock market and treasury markets have responded to the news quickly. Major indexes have risen between 2.5%-3.0% following the election victory. While the immediate boost of expectations associated with political certainty are likely to dissipate in the weeks to come, the 2024 election is poised to have a sizable impact on CRE markets based on policies proposed by the trump campaign. There is no certainty the administration will get these policy proposals passed or enacted. However, looking at the potential impacts will help investors and tenants better prepare for 2025 and beyond.

Before moving on to the impact of Trump’s economic policy on U.S. CRE markets, its important to note the impact some Harris policies would have had on investors and consumers. Avoiding these policies is likely just as important to investors and markets as Trump’s policies are.

National Rent Control

Vice President Harris expressed support for Biden administration proposals regarding a national annual rent cap for housing. The policy would have resulted in less construction of new housing, exacerbating existing shortages. In addition, cash flow expectations for apartment assets would be moved greatly. This would impact investor strategies and make multifamily assets less valuable and desired by investors.

Tax Changes

The Harris campaign laid at a plan to raise personal, corporate, and estate tax rates. In addition, a “live” capital gains tax was also floated. The impact of the policies would vary based on property type and investor finances. But generally, higher capital gains and estate taxes would impact the amount of money heading into CRE markets, and the relative attractiveness of CRE investments.

1031 Exchange Rules

While not explicitly targeted in her housing proposals, VP Harris supported a Biden proposal calling for the elimination of 1031 tax exemptions for investors with incomes over $400,000 per year. The 1031 exchange policy aids deal flow greatly. Its removal would limit investor’s ability to adjust investment strategies based on changing market conditions.

Down Payment Subsidy

A $25,000 subsidy for first time home buyers was a policy included in the VP’s housing policy. The subsidy itself wouldn’t aid in solving the nation’s housing shortage but would support heightened buy-side single-tenant housing competition. As a result, the policy was likely to have boosted the overall price of single-family homes once implemented.

Trump Housing Policy Should Aid Developers

President-Elect Trump has laid out several key policies aimed at getting the housing market back to equilibrium, primarily, opening federally owned land for housing development. The fundamental idea guiding this policy is to increase the supply of land available for housing. It would also decrease developers acquisition costs and hopefully make more construction deals pencil for lenders and investors. The campaign has discussed tax incentives for home and housing builders, further lowering the costs of building, and the two policies in tandem would increase housing supply greatly. Although, due to the time lag of development, it will not impact markets in the immediate future.

The Trump team has also discussed adjusting zoning laws. However, there isn’t much the federal government can do about the issue. Zoning laws are determined at the local level, and while supporting the federal government could prompt some municipalities into looser zoning requirements, it’s unlikely coastal cities would make any changes to their zoning regulations. Importantly for the housing shortage, places like Los Angeles and New York are in need of the most new housing supply.

Immigration policy was tied into housing policy during the election cycle. Trump’s team discussed the impact illegal and legal immigrants may be having on the supply of housing available to Americans. While there is no certainty any slowdown in legal or illegal immigration will occur, fewer new residents in the country would likely result in higher vacancy rates for apartments, less spending on retail goods in the United States, and more expensive construction labor costs for developers than otherwise would be recorded.

Potential for Accelerating Nearshoring to Boost Certain Industrial Markets

Another key Trump proposal involves increasing tariffs on certain goods from specific countries, mainly China. China’s importance as a U.S. trade partner has been in decline since the COVID-19 pandemic shocked global supply chains. However, an even more rapid acceleration of production reshoring to the U.S. and Mexico would impact the most utilized supply chains in the United States. Goods from Asia primarily enter the U.S. in west coast ports. This factor drove demand for industrial space in Southern California for over half a century.

If tariffs come to fruition and the U.S. begins receiving a greater amount of its imports from Mexico and Latin American countries, the supply chain will shift away from the west coast into the Sun Belt. The effects of the initial period of this trend are already being felt, with heightened industrial demand in Phoenix and San Antonio being the result of truck trade with Mexico, and Industrial demand in the Gulf of Mexico being driven by an uptick in shipments from South America.

So, while tariffs are unlikely to move all or most production back to the U.S., they will shift the cities and areas where industrial volume is recorded, further boosting some of the hottest industrial markets in the nation. Phoenix, San Antonio, Miami, and Atlanta are all industrial markets to watch if trade volume from Latin America advances.

If Trump moves forward on tariffs on both China and Mexico, like his campaign has floated, the immediate impact will likely only impact consumer prices and heighten inflation. In the long run, the impact of less trade with the two countries would likely shift trade deep into Central and South America. As a result, countries like Guatemala, Brazil, and Argentina would fill the trade gap that would emerge. Trade from these places would utilize the same supply chains into southwestern and Gulf Ports.

Expectations for Growth and Impact on Labor Markets

Many of Trump’s policies promote growth for businesses. However, it is important to remember the Federal Reserve has been trying to cool economic growth for almost 2 years. The 10-year Treasury rate rose the morning following his election win. This was largely due to a heightened confidence in The United States’ long term economic expectations. Consumer sentiment rose 250 basis points following the election and is currently up nearly 20% from the November 2023 level. Even though more growth may impact the Fed’s ability to get and keep inflation below 2%, growth also provides CRE owners with opportunities to improve the fundamental performance and cash flow at their properties.

Monthly job gains have slowed over the course of 2024, largely an intentionally measure by the Federal Reserve. If corporations and small businesses record lower operational costs associated with regulations and taxation, we could see job tallies move back towards the brisk pace of growth the nation recorded before rate hikes occurred. More workers will boost consumer spending and household formation, benefiting apartment, retail, industrial, hotel and self-storage owners.

Key Takeaways for Investors

Trumps election will impact CRE markets in numerous ways. The most important direct impacts of Trump policy will surround housing, taxation, and foreign trade. Indirectly, the election being over will reduce negative media stories and provide certainty to investors and consumers. Heightened certainty amid a rate cutting cycle should acerate deal flow in 2025 and set up CRE markets for performance and investment success over the next several years.