Unlike some asset classes, commercial real estate did not participate in the so-called Trump bump. But real estate growth in coming years could, in part, be affected by which of the administration’s policies becomes reality, according to a new white paper by real estate money manager LaSalle Investment Management. Real estate investors, collectively owning a combined $534 billion in core properties, did not participate in the market’s highs and lows following the election of President Donald Trump.
While real estate lags the economy in general, Mr. Trump’s election and the early days of his presidency coincided with a slower real estate market, resulting from higher interest rates and slow economic growth, the LaSalle paper stated. Real estate vacancy rates flattened in the first quarter after several years of steady improvement. For example, apartment vacancy rates were up 50 basis points from the prior quarter and 20 basis points from the year-earlier period as more apartment buildings came on the market, the paper stated.
The impact on real estate of any of the Trump administration’s policy initiatives that do become reality would depend on the property type and region. This leaves real estate investors’ eyes on Congress.
“We continue to track the ‘dance of legislation,’ ” said Jacques Gordon, LaSalle’s Chicago-based global head of research and strategy, referring in an interview to a phrase attributed to President Woodrow Wilson. Mr. Gordon co-authored the white paper.
Except for possible high-impact changes — such as the repeal of the Affordable Care Act — real estate performance will be relatively unaffected by what the administration does, Mr. Gordon said. “The economy is much larger than the tiny part executive orders or presidential policy influence,” he said.
Still, administration policy could have an impact depending on the sector, the paper stated.
Sluggish economic growth resulting from legislative or regulatory changes would affect the office sector the most. Domestic spending cuts would first affect the Washington metro area. Research budget cuts including Mr. Trump’s proposed $1.2 billion at the National Institute of Health could affect other markets, such as Boston, with its high concentration of university-based medical and biotech research.
Immigration law changes that restrict the flow of highly skilled workers could make the U.S. less attractive for technology companies, affecting Seattle and San Francisco. Fewer foreign students due to immigration changes would impact university cities and towns where education is the key economic driver such as Madison, Wis.
The apartment sector would be rocked should fewer people move to the U.S.
“The Pew Research Center estimates that 88% of U.S. population growth over the next 50 years will be driven by future immigrants and their children,” the LaSalle paper stated. Fewer migrants due to immigration policy changes would mean less demand for apartments.
A major overhaul of the Affordable Care Act could make the overall health-care system less profitable and would be a major hit to health-care real estate, Mr. Gordon said. An ACA repeal or overhaul would not impact prevailing health-care trends of delivery moving to outpatient settings from hospitals, which benefits medical office buildings, and the aging population, which supports memory care centers and other properties serving older Americans. But, real estate investors would need to concentrate on areas where there are large populations of insured people.
Mr. Gordon noted that “23 million to 24 million Americans losing insurance would be a major hit to health-care real estate.”
Medical real estate in areas in which there are large numbers of people who are self-employed, are low-income, are Medicare/Medicaid recipients or have pre-existing conditions would suffer the most, he said.
“There would be less impact on higher-income areas,” Mr. Gordon said. “People who work for large to medium-size corporations still have insurance.”
Some sectors are not likely to be affected at all by what happens in Washington. Retail real estate is more affected by the changes in consumer purchasing habits brought on by e-commerce than policy shifts, the paper stated. A possible 20% border adjustment tax, which would have negatively affected retail, is not expected to be enacted.