With the 2020 elections only days away, you might be wondering which political party has the greater impact on U.S. commercial real estate. Would it surprise you to find out that several reports show that real estate returns under presidents in each party do not show a significant advantage for either party?
New reports from Newmark Knight Frank (NKF) and Cushman & Wakefield tackle this exact subject. NKF analyzed real estate returns over the past 40 years and found that annualized total returns averaged 9% under Democratic presidents and 8.2% under Republication presidents.
Though NKF acknowledges some correlation between the political party sitting in the White House and Congress with stronger office or multifamily market fundamentals, the firm is quick to point out that “correlation is not causation.”
In other words, there are other factors that have greater influence over the real estate sector – economic or geopolitical factors, or in the case of 2020, a novel virus that wreaked havoc around the globe.
“Rather than elections, the cycle, the economy, interest rates, COVID-19, and geopolitical events are the areas to focus on in determining the impact on the leasing fundamentals and property values,” Cushman & Wakefield’s report said.
NKF added: “This may come as a relief to investors who are concerned about the potential impact of November’s elections on the commercial real estate market.”
Consider the multifamily sector: during the eight years under Democratic President Barack Obama, multifamily effective rent change averaged 2.7%, significantly higher than the 20-year average of 2% and the 1.6% average under Republican Presidents George W. Bush and Donald Trump.
NKF explained that though the data seemed to show that Democratic control was more favorable for multifamily market fundamentals, it’s more likely that external factors had more influence. For example, the expansion of high-paying technology jobs in major U.S. multifamily markets during Obama’s term drove strong multifamily rent growth.
Beyond the White House, it’s interesting to note that the most favorable office fundamentals for asset owners over the past 20 years occurred under a Republican-controlled Congress, with U.S. office absorption averaging 40.8 million square feet per year, significantly higher than the 20-year average of 16.1 million square feet per year. In contrast, office absorption averaged negative 6.3 million square feet per year while under a Democratic-controlled Congress.
“With this small data set, it would seem that a Republican Congress generates more office demand than a Democratic-controlled one. However, the fact that a correlation exists between Republican control and higher office demand does not necessarily mean that Republican control was the cause of increased demand,” the report noted.
NKF pointed out that the slow pace of change in the federal government and the time lag from when a particular policy is enacted to its eventual influence on commercial real estate “diminishes any direct relationship between political control and commercial real estate market fundamentals.”
However, Cushman & Wakefield pointed out that different administrations have different spending priorities that will impact where growth occurs across the nation and what industries have greater growth opportunity in the long term.
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