The Uncertain Presidential Election and Its Impact on CRE Investment
In addition to the pandemic, natural disasters, and civil unrest, 2020 was also an election year. For commercial real estate investors, this adds an additional layer of uncertainty to an already challenging market. A new report from Cushman & Wakefield analyzes the impact of the presidential election, and what investors need to do to prepare.
At the moment, the outcome of the election is uncertain. While Biden continues to poll ahead, his lead has narrowed to single-digit numbers, and historically, the incumbent president has won the second term election. According to the report, the incumbent president has won two-thirds of the time since World War II. To add more uncertainty to the outcome, polling in the last election missed the mark, both in the US and the UK, and historically, polls have been inconsistent in predicting the outcome of elections. For these reasons, Cushman & Wakefield is keeping its 2021 forecasts agnostic to the election.
In some ways, an agnostic outlook may be the right fit. Real estate generally performs well under both Democratic and Republican presidencies. The report notes that real estate returns have averaged 8.5% since 1979 under both administrations and changes in administrations. For that reason, the report recommends that investors focus on economic cycles, interest rates, and developments in relation to COVID-19 to determine property and leasing trends and fundamentals.
Ultimately, the election results won’t have an immediate impact on the real estate market. Presidential administrations can have an impact on investment markets, but generally, those changes happen over the long term and are based on spending trends that drive growth and industry. Investors should focus on these spending policies as well.
The presidential election isn’t the only election that could impact investment this year. The Senate, House of Representatives and local and state governments will also shape the investment market, according to the Cushman & Wakefield report. The House and Senate will guide legislative policy and spending. Most polls are currently showing the future Senate majority a toss-up, with either Democrats or Senators pulling ahead; and most polls show the House remaining in a Democratic majority.
While this data shows that the election might not have a significant impact on the investment market, most industry professionals are watching the election closely. In a recent survey conducted by Berkadia, investment sales professionals said that the election was the most important issue impacting multifamily and debt professionals named the election as the second most important issue impacting multifamily.
The election attention isn’t new. Earlier this year, before the pandemic struck, RCM/LightBox’s National Investor Sentiment Report predicted that investment activity could pause leading up to the election. In the survey, 33.5% of investors expected that capital investment would pause before the election. However, at that time, most were still optimistic about the year aside from the election.