What could the election mean for commercial property? - Capital Economics
US Commercial Property

What could the election mean for commercial property?

US Commercial Property Update
Written by Kiran Raichura
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While Joe Biden is currently favourite to win the election, we don’t think the winner’s identity will have a major effect on the economy. We also don’t expect it to substantially alter the prospects for the asset class as, in either case, monetary policy should stay extremely loose, keeping Treasury yields close to all-time lows. But the apartment sector may benefit if a major stimulus package were to follow a clear victory.

  • While Joe Biden is currently favourite to win the election, we don’t think the winner’s identity will have a major effect on the economy. We also don’t expect it to substantially alter the prospects for the asset class as, in either case, monetary policy should stay extremely loose, keeping Treasury yields close to all-time lows. But the apartment sector may benefit if a major stimulus package were to follow a clear victory.
  • With the Presidential election less than a month away, now seems like a good time to consider what the election’s outcome could mean for commercial real estate. As things stand, the polls are firmly in favour of a victory for Joe Biden. Betting odds point to a roughly 65% chance of a Biden victory, suggesting that there is a growing likelihood of a Democrat clean sweep. (See Chart 1 and here.)
  • Of course, polls and betting markets have been wrong before, but what might a Biden win mean for real estate and how might it compare to a second term for Trump? Our US Economics service is the place to find more details. (See, for example, our US Economics Focus and our US election webinar recording.)
  • Both candidates are in support of a fiscal stimulus package early in the Presidency, which is an upside risk to our forecast, but depends on the make-up of Congress. Further upside would come from a Biden win, alongside the Democrats taking control of Congress. A disputed result, which cannot be discounted, would pose downside risks to the economy, financial markets and property markets in the short-term.
  • Such a stimulus package would provide some upside to our property forecasts, particularly for the worst-hit sectors such as retail and hotels. If it included job retention schemes and/or a prolonged higher level of unemployment benefits, it could also provide support to apartment markets, reducing rent arrears and potentially slowing rental falls. (See Chart 2.)
  • The longer term is where the key differences exist between the candidates. A Democrat majority led by Biden would be likely to shift fiscal policy toward higher taxation and Federal spending. Biden is also keen on raising the minimum wage, which, if enacted, would likely raise the cost of doing business in the retail and leisure sectors. Though this would probably be delayed until those sectors are back on their feet.
  • Potential longer-term measures could also sway the balance of risks on core sectors. If the Democrats won and increased corporate taxes, the office, retail and industrial sectors could see demand suffer and rents soften as other costs rise.
  • The bigger picture though is that whatever happens, monetary policy is set to stay loose for a prolonged period, meaning that Treasury yields are also set to stay close to their current levels, keeping property attractive. However, with the potential for a fiscal boost next year, the worst-hit property sectors could benefit from a boost to demand. And if the Democrats take a clean sweep of the Presidency, the House and the Senate, then that boost could be substantial.

Chart 1: 2020 Election Betting Odds (%)

Chart 2: Net Effective Apartment Rents (% m/m)

Source: PredictIt

Source: REIS


Kiran Raichura, Senior Property Economist, kiran.raichura@capitaleconomics.com