The recent presidential election and scheduled transition of power from Republican President Donald Trump to Democrat President-elect Joe Biden is just one of several issues causing uncertainty for business leaders at a tumultuous time in U.S. history. As is the case during every election season, many wonder how the election will affect the U.S. commercial real estate (CRE) markets, with various theories proposed regarding how political control impacts the industry.
In its recent study, Newmark Knight Frank examined the impact of political control on the U.S. office and multifamily markets, along with the outside factors that may play a greater role. It also tackles the question of the impact of uncertainty in election years and the effect it may have on CRE.
The conclusion? Looking at political party alone, there isn’t much difference in returns on investment in CRE under the presidential administrations of the last 40 years, according to “The Impact of Elections on the U.S. Office and Multifamily Markets.”
“Though there may be some correlation between the political party in control of the White House and Congress with stronger office or multifamily market fundamentals, correlation is not causation,” the study asserts. “There are economic and geopolitical factors that likely have greater influence. This may come as a relief to investors who are concerned about the potential impact of November’s elections on the commercial real estate market.”
Over the last 20 years, U.S. office absorption averaged 40.8 million square feet per year with a Republican-controlled Congress. During the same time period, the years under a Democratic-controlled Congress recorded 6.3 million square feet of negative office absorption per year, according to the study.
“With this small data set, it would seem that a Republican Congress generates more office demand than a Democratic-controlled one,” the study says. “However, the fact that a correlation exists between Republican control and higher office demand does not necessarily mean that Republican control was the cause of increased demand.”
Other Key Findings:
- While various theories have been presented regarding one major political party or the other having a greater impact on U.S. commercial real estate, a look at real estate returns under presidents of each party does not show a significant advantage for either party. Over the past 40 years, annualized total returns averaged 9.0% under Democratic presidents and 8.2% under Republican presidents.
- While examples can be found of stronger market fundamentals under various scenarios of control of Congress and the White House, it is important to consider the slow pace of change in the federal government. The lag effect from the time a particular policy is enacted to its eventual influence on commercial real estate diminishes any direct relationship between political control and commercial real estate market fundamentals. There is no question that sometimes policy decisions play a role in influencing future market conditions—but neither party has demonstrated a clear, causal link to greater or weaker office and multifamily fundamentals.
- Elections bring economic uncertainty, and this effect may be even more pronounced for the particularly tumultuous 2020 election cycle. However, there is no discernible trend of greater or weaker job growth in presidential election years nor the years preceding or following them. In fact, job growth in election years has averaged 1.7 million, slightly higher than the 40-year average annual job growth of 1.5 million.
If you’re interested in learning more, download the white paper here.
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