Election Uncertainty Could Cause Slowdown In CRE Activity
The outcome of this year's presidential election will determine the type of economic policies the U.S. pursues for years to come, and some real estate leaders say they expect this will lead to a slowdown in activity as November approaches.
Recent history shows that major elections can lead to a significant slowdown in investment and leasing activity, and the D.C.-area developers and general contractors who spoke Tuesday at Bisnow's D.C. Construction & Development event expect that trend to continue this year.
The office leasing and investment sales markets in the D.C. area experienced sluggish periods ahead of the 2016 election as business leaders delayed major decisions. This trend occurred more recently in the UK, as investment volumes dropped significantly in the months leading up to December's landmark election.
As President Donald Trump looks to remain in office for a second term, his potential challengers, from current front-runners Sen. Bernie Sanders and South Bend, Indiana, Mayor Pete Buttigieg to Michael Bloomberg, the billionaire former New York City mayor who is surging in the polls, offer a wide range of economic policy agendas.
MRP Realty principal Matt Robinson said the election-related pause this year could be especially pronounced given how far apart the candidates are ideologically.
"I think there’s a consensus that sales activity could slow down toward the second half of this year as everybody waits to see what happens," Robinson said. "There could be such a drastic difference in outcomes that there’s going to be a little bit of sitting on the sidelines until we figure out what happens."
EYA President McLean Quinn also said he expects a slowdown in activity prior to the election, but he thinks it could extend past November.
"Obviously there’s the anticipation of the election, whether it’s August on or even sooner, but there is a carryover, hangover effect, too," Quinn said. "Regardless of how the election goes, you don’t know what it means, so that takes time to work its way through the system. It's a really long impact of about a year that this election has."
Hoffman & Associates Executive Vice President Maria Thompson, who oversees the construction of The Wharf, said the election creates a full year of uncertainty and cited it as one of her top concerns.
"I put it in the category of something that keeps me awake at night, because we have projects that are breaking ground this fall, so there's the anticipation of pricing and labor and just the reaction to the election," Thompson said. "And then we have projects breaking ground next spring. So we’re in that yearlong cycle of, 'What’s going to happen?'"
The D.C. office market has experienced a bump after past elections that led to a change in the party in power, as different organizations come in to work with the new administration on its policy agenda.
"If the administration changes, then typically the year after is great because there’s turnover in buildings," Boland Executive Vice President Jerry Scanlan said. "If the administration doesn’t change, there’s not as much turnover in buildings."
Despite a potential post-election leasing bump, Scanlan said he does expect a slowdown in overall business activity leading up to November.
"Sometimes what happens in about August is people kind of slow down and just start watching the election, and business kind of slows down," Scanlan said. "I hope that doesn’t happen."
Rand Construction CEO Bob Milkovich, who previously led First Potomac Realty Trust before joining the general contracting firm last year, said he looks more at economic fundamentals than the occupant of the White House.
"We live in D.C., where politics drive our city, but the thing I focus on is the economy," Milkovich said. "We're late in the real estate cycle, but if we can just work our way through a good economy, that will be the real benefit, whichever way the election turns out."
One of the Trump administration's economic policies that most impacted commercial real estate was the implementation of tariffs, and a new president with a different approach to trade could lead to major changes. Associated General Contractors of America Chief Economist Ken Simonson said tariffs not only impacted construction costs, they hurt U.S. manufacturers and the industrial real estate sector.
"Manufacturing should have been rebounding, but no sooner did the president sign the Tax Cuts and Jobs Act than he started slapping on tariffs, and that has really disadvantaged U.S. producers and created huge uncertainty," Simonson said.
