Commercial real estate prognosticators are unsure what exactly President-Elect Trump's policies will do for the sector. But they are hopeful that regulations and restrictions will loosen and help open the spigots of development.
The actual effects will depend upon the extent to which Trump’s campaign proposals are ultimately enacted. Nonetheless, the election of a Republican Congress raises the odds that Trump will be able to translate much of his campaign proposals into reality.
According to real estate services firm Colliers International, the primary planks of Trump’s economic platform include:
1. STIMULUS PACKAGE Trump’s planned infrastructure spending and income tax cuts should boost both employment and economic growth. However, the impact will likely be limited as the labor force is already near full employment.
Gains from the stimulus will be partially offset by greater inflation and higher interest rates, as suggested by the post-election surge in rates.
2. BUSINESS TAXATION AND REGULATION Trump is expected to propose a series of business-friendly measures—such as lowering and simplifying business taxes and reducing regulation that would likely boost investment and hiring.
The energy, financial and pharmaceutical sectors are especially likely for more favorable regulatory treatment.
3. IMMIGRATION Trump promises to cut both legal and illegal immigration and to deport some or all undocumented immigrants. Any program of mass deportation would directly shrink aggregate demand and slow GDP growth.
The loss of workers would exacerbate labor shortages, fueling inflation as firms raise wages to induce people into the labor force. Some positions will likely go unfilled and will slow growth further.
However, faster wage growth would translate into greater consumption, driving secondary GDP growth.
4. TRADE The impact of Trump’s commitment to reform our trade policies is highly uncertain until we have clarity around the proposal and how much the Republican leadership in Congress will approve.
The reaction from our trading partners is unknown but may range from a limited response to retaliatory tariffs to an all-out global trade war, which would seriously harm our economy.
According to Colliers, any direct stimulus is unlikely before mid- 2017, as complex tax laws are time-consuming to draft, negotiate and adopt. The infrastructure program would take even longer, the firm says.
The emerging consensus is that the stimulus package could yield a modest economic boost in GDP of 20 to 50 basis points annually in 2017 and 2018, while also raising inflation and interest rates faster than the baseline scenario, writes Colliers chief economist Andrew J. Nelson, in the firm's 2017 Market Outlook report.
The pro-business shift in regulation and taxation should boost investment and hiring, particularly in the energy and financial sectors, Colliers says. However, reduced trade and immigration could materially slow long-term growth, depending upon the policies enacted and any retaliation from our trading partner.
"If we see a rise in budget deficits, interest rates and inflation, a resulting rise in the dollar could undercut the global competitiveness of U.S. products and reduce exports," Nelson writes in the report.