HEALTH CARE POLICY

The outcome of the 2016 U.S. presidential election has piqued the world’s interest, as the Republican Party gained control of the White House and retained majorities in the House of Representatives and the Senate. While there are still more than 60 days until President-elect Donald Trump assumes office, his campaign platform and post-election statements provide the basis for CBRE to anticipate here his potential policy implications, priorities and potential impact on the economy and commercial real estate.

CBRE’s analysis of the Trump administration is limited to the economic impact on commercial real estate markets and does not address any of the myriad non-economic issues that so deeply divided the country during the presidential campaign and its immediate aftermath. Like most Americans, CBRE states it hopes that the country can come together and overcome these divisions in the months ahead. The company remains vigilant as policies unfold in the new administration, and offers at any time to colleagues and clients to discuss potential impacts on commercial real estate.

OFFICE

Reduced regulation—and potentially greater economic growth due to tax cuts and higher spending—would benefit several large office-occupying industries.
Increased defense spending would benefit markets with heavy concentrations of defense-industry companies, especially Washington, D.C.
Significant changes to Dodd-Frank could boost office demand from the banking sector in the long term.
Unknown but anticipated changes to Obamacare could have short-term negative impact on medical office demand.
More restrictive immigration policy could constrain the available skilled-worker pool, particularly impacting the tech industry and its demand for office space.

INDUSTRIAL

Import-driven industrial markets and assets need to be watched given the likely more protectionist stance of Trump’s trade policy. A protectionist trade stance could negatively impact imports, which are a better indicator of industrial space demand than exports.
Given the historically tight occupancy conditions in industrial markets, a modest softening would have only limited impact. A short-term slowdown in demand may give the supply side room to grow and, over the medium term, give users more options.
There is potential for a strong positive impact on direct-to-consumer (last-mile) industrial dynamics, as stronger overall economic growth would boost consumer demand.

RETAIL

We foresee a net benefit as faster economic growth from fiscal stimulus could improve consumer confidence and spending, and a stronger dollar should further increase buying power.
There could be a neutral-to-negative impact on the luxury segment with increased domestic demand counterbalanced by decreased foreign demand due to a stronger dollar.
In the near term, real wage growth will drive consumption and retail sales. Tax cuts, if enacted, could aid this growth.
More restrictive immigration policy may affect labor supply and costs for retailers and restaurants. There would be a positive countervailing factor on these employers if there is no federally mandated increase in the minimum wage (although several states enacted plans to increase to as much as $15 an hour in this election). The potential to eliminate the 30-hour work week requirement to qualify as a full-time employee under Obamacare would also benefit retail employers.

MULTIFAMILY

Less regulation on financial institutions could make home mortgage lending easier, benefitting the single-family home industry.
On the other hand, higher interest rates associated with more expansionary fiscal policy and inflation make single-family home affordability weaker. The added cost of higher interest, combined with the growing student loan burden on some first-time buyers, is likely to keep single-family demand muted in the medium term.
We will continue seeing strong deliveries with units already under construction, but this should taper considerably if economic growth moderates through 2018-2019.
Expansionary fiscal policy may be inflationary with respect to wages. Tax cuts could benefit renters with higher incomes and could prop up fundamentals of higher-end product.
Aggressive immigration policy could decrease population growth and household formation. These demand-side concerns are most likely to affect the Class B/C properties, which have been performing very well.

HOTELS

The potential for a positive overall impact due to enhanced business and consumer demand could outweigh weaker demand from foreign travelers due to the strong dollar. Corporate travel may increase with lower corporate tax rates and a pro-business stance by the president-elect that encourages business spending.
Trump has strong business interests related to the travel industry. Whether this is a positive indicator for the future of the tourism and lodging industry over the next four years remains to be seen.
Changes to immigration policies that reduce the availability of labor and local legislation that increases the minimum wage are potential negative impacts on hotel profitability. Labor is the biggest operating expense for hotels.
On the other hand, reductions in mandated employee benefits and employer-favorable appointments to the National Labor Relations Board could reduce labor costs and enhance profitability.

Repeal and replacement of Obamacare is one of the top legislative agenda items for Republicans.
A full-scale repeal is unlikely, as some 20 million Americans would immediately be without health insurance coverage. Trump has stated his support for elements of Obamacare, such as coverage for pre-existing conditions and the provision that allows parents to cover adult children up to age 26.
Elements of the replacement could include lifting restrictions on the sale of insurance across state lines and some type of tort reform. Medicaid, the federal health program for the poor, will likely be turned over to individual states.
Changes to Obamacare likely will play out over many years, implying extended policy uncertainty for health-care providers and impacting their strategic business decision-making.
Changes to health-care policy may impact job growth, as health care has been the sector with the strongest job growth during the economic recovery.
In the short term, this may limit demand for office space by health-care providers. In the long term, an aging population will drive demand.

DEFENSE POLICY

Trump has signaled a commitment to increase military spending by an additional $55 billion to $136 billion over the next four years.
Washington D.C. is expected to be the biggest net beneficiary of both the unified government generally (leading to more legislation) and defense spending specifically (more government contracting).
The federal budget’s fiscal year runs from October to October. As a result, the first Department of Defense budget that Trump would completely control is FY19, as the FY18 request is due in February of next year.

For additional information, contact Spencer Levy, Americas Head of Research at 617.912.5236 or [email protected].