Expect More Government Stimulus in 2021

“2021 will be better than 2020,” promised Spencer Levy, chairman of Americas research and senior economic advisor for CBRE at a virtual CREW San Diego event this week. In the conversation, Levy gave a bird’s eye view of economic expectations for the year. One game changer: economic stimulus. Levy says that under the new administration, more is likely on its way, and that is good news.

Levy is expects at least another $1.9 billion in stimulus to pass this year. “The flip of the Georgia senate seats changed economic calculus as to how much we expect,” he said. [That is] good news for CRE because big cities are broke from tax declines.”

Overall, the government learned a lesson from the 2008 financial crisis, when it took months to work out a stimulus plan and response. The initial CARES Act legislation came through quickly to help stabilize the economy. The funding helped to offset the economic loss early on. Without it “you would have seen a really bad day at the office,” says Levy.

For that reason, the economy is actually in better shape that you’d expect, according to Levy. He is forecasting 5% GDP growth this year and mid-4% growth in 2022. The vaccine rollout is playing a major role in the recovery. So far, the distribution of the vaccine is taking longer than expected. However, the rate of infection is slowing, and California is beginning to remove stay-at-home orders, which will help businesses.

At the moment, there is little optimism in California, but Levy says that most people are in a bubble. “You don’t feel the good news because you’re sitting at home,” he said. Other markets have a much different outlook. “Some states have some more optimism because weren’t hit as hard by the virus,” he added.

However, California has taken a financial hit during the recession, and the state was looking to recoup some of those losses. However, it won’t come from property taxes. Prop 15, which would have increased property taxes for commercial properties, failed at the ballot in November. According to Levy, property owners “dodged a bullet” when the Prop failed.

The Biden Administration could bring some changes that will impact the commercial real estate market this year. Capital gains taxes and 1031 exchanges are potentially on the chopping block, and that has investors concerned. The new democratic majority in both the Senate and the House increase the potential that the administration will eliminate 1031 exchanges. In fact, Levy says that it is more of an issue of when, not if. He expects the administration to broach the topic in 2022. If investors anticipate the end of 1031 exchanges next year, Levy expect to see a substantial increase in transaction volume this year.