What a Democratic Sweep Might Look Like for CRE
Historically, CRE has performed well under both Democratic and Republican administrations.
There is a lot of anxiety around the 2020 Presidential election.
But for CRE, at least, election results are unlikely to have a considerable impact, according to a new report from DWS’ Real Estate Team.
DWS maintains that the industry generally overestimates the impact of federal elections on real estate. Historically, CRE has performed well under both Democratic and Republican administrations, according to the National Council of Real Estate Investment Fiduciaries. The average annual returns under Democrats has been 10.3% since 1978. Under Republicans, it has been 8.1%.
This year DWS sees two differentiated outcomes: a Democratic sweep and everything else. While divided government or a Republican sweep will mostly be a continuation of the status quo, a Democratic sweep could bring notable policy changes. DWS sees a 42% chance of a Blue Wave.
If the Democrats sweep Congress and The White House, DWS expects some potential CRE impacts. The party could pass a fiscal stimulus that could support more robust near-term growth, though higher taxes might drag down economic growth in the medium term. Increased immigration could stimulate population and job growth, according to DWS.
A Democratic COVID relief package could alleviate near-term budget pressures on Gateway cities. Immigration policy could also play a role as immigrants gravitate to cultural centers and help offset any Sunbelt exodus. Democratic policy could also reverse caps on state and local tax (SALT) deductions that support high cost and coastal cities.
On the investment side, tighter environmental regulations could lead to higher capital expenditure burdens. Additionally, tax code changes could negatively impact taxable real estate investors, potentially dampening near-term liquidity and pricing at the margin, according to DWS.
While DWS says policy changes resulting from the 2020 elections may impact specific sectors or markets, they are unlikely to impact real estate overall significantly.
Elections at the federal level aren’t the only things that real estate investors should watch, according to DWS. “For real estate investors, cyclical considerations, such as the pace of the economic recovery, and secular trends [e.g., e-commerce] will have the greatest impact,” DWS writes. “Real estate investors should also consider the impacts of state and local elections where issues such as real estate taxes and rent regulation are on the ballot.”