Donald Trump has won the US presidency in a shocking upset. News of his victory coursed through global stock markets, causing them to briefly tumble, though they stabilized quickly thereafter. While Trump came to power by exploiting a surge of populist sentiment, there are many open questions as to what the real estate mogul’s presidency will look like for businesses, and commercial real estate (CRE) in particular.
Major Planks in Trump’s Economic Platform
“Despite all the noise, Trump in my mind won on a promise of growth,” said John Kevill, Avison Young principal and managing director for U.S. Capital Markets. “His proposed infrastructure spending, plans for lower taxes, moving jobs back and a target of 4% growth all speak to that. If it appears that things are starting to happen in that regard, expect CRE investment to follow as yield will look to be relatively attractive.”
Trump has, among many other things, run on a platform of protectionism, wall-building, and economic growth. If he succeeds in bringing manufacturing back to America and follows through on his vow to construct a US-Mexico barrier, it could portend a greater volume of construction, including factories, warehouses, and commercial offices– particularly in the Rust Belt. Yet there are also the negative feedback effects of protectionism to consider. For instance, while manufacturers stand to gain from such policies, developers who source construction materials may face higher prices born of decreased competition.
Trump has also vowed to boost defense spending and invest $1 trillion in infrastructure, which also presages a construction boom. Accordingly, Caterpillar’s stock, following his victory, surged 7.7%. Increased government spending in such sectors will likely lead to an expanding portfolio of properties owned by the government.
“We will more than likely see a significant increase in spending on real estate by the General Services Administration (GSA), government contractors, consultants, and, of course, lobbyists,” said John Kevill, Avison Young principal.
And, with the House and Senate firmly under Republican control, some are predicting reduced political gridlock and dysfunction, paving the way for Trump to follow through on his promises to pare back corporate and individual taxes as well as to roll back Dodd-Frank regulations. This also augurs well for CRE. In particular, Trump has proposed taxing long-term capital gains on real estate ownership and investment at a maximum rate of 20%, judiciously capping business interest expense deductibility, and taxing carried interest as ordinary income.
Luxury Real Estate
Despite the outstanding uncertainty surrounding the nature of, and policies proponed by a Trump presidency, some are confident that, given Trump’s background, he will be a champion for the luxury real estate sector in the US and abroad.
Trump’s win “will bring a property industry leader into the White House for the first time in American history. Without a doubt a Trump presidency will be pro-property and pro-real estate,” said Peter Wetherell, a London-based real estate broker and CEO of Wetherell.