The Ripple Effects of Politics on Commercial Real Estate

Calendar
August 19, 2024

Election season is definitely here! Politics and elections can create a ripple effect in the commercial real estate market, influencing investment decisions, regulatory environments, and economic policies that directly impact various regions. The influence of political seasons, especially presidential election years, on commercial real estate can be positive and negative.

Elections often bring uncertainty about future economic policies. This uncertainty can cause investors and businesses to adopt a “wait-and-see” approach, which can slow transactions and developments in commercial real estate. Companies might hold off on expanding or leasing new locations until after an election, affecting demand in the office, warehouse, and retail real estate markets. Uncertainty in the interest rate markets in 2023 and 2024 has also slowed investment dollars into commercial real estate assets from record volumes prior to 2024.

Changes in corporate taxes, capital gains taxes, and depreciation policies that can be part of an winning administration’s tax policy can directly affect the profitability of commercial real estate investments. Political pressure on the Federal Reserve or changes in fiscal policy also move interest rates and has a direct impact on commercial real estate values.

Different administrations at federal, state, and local levels frequently prioritize different aspects of urban and suburban development, leading to changes in zoning laws and land use regulations that impact commercial real estate. The general housing shortage currently affecting many parts of the nation is greatly impacted by zoning policy, permit regulations, interest rates, and construction costs that our elected bodies are frequently watching.

Political candidates from all parts of the spectrum often promise increased spending on infrastructure projects. These projects can lead to greater demand for commercial real estate, particularly in construction, logistics, and transportation. Enhanced focus on public-private partnerships to accomplish these infrastructure projects can also provide new opportunities.

Political campaigns also add dollars into the economy in the form of increased spending on advertising, events, hotels, and campaign offices can boost demand for retail, office, and hospitality spaces. Campaigns often lease office and retail spaces for their campaign headquarters, giving property owners some short-term income from rents.

Certain regions of the country and certain sectors might experience a boost in confidence based on the expected outcome of the election. For example, if a candidate promises to boost the tech industry, there could be increased investment in office spaces and data centers. Increased spending in healthcare and education can lead to the development of medical offices, hospitals, and educational facilities. Candidates who support sustainability and green energy can boost demand for commercial real estate projects focused on energy efficiency and sustainability. Frequently these policy initiatives are accelerated through tax credits, deductions, and other state and federal incentives geared toward influencing business investment.

Commercial real estate can be significantly impacted by politics, especially in a presidential election year. It is important to recognize these challenges and opportunities. The uncertainty and potential changes can slow down the market, but increased government spending and favorable economic policies can stimulate activity and growth. By understanding these dynamics, stakeholders in the commercial real estate market can better navigate the intricacies of political seasons and leverage the opportunities that arise.

FILED UNDER: