October 23, 2020
It’s arguably the most closely-watched national election in at least a generation, and arguably the most consequential. There are convincing arguments to be made either for an outcome that preserves the status quo or one that shifts control of the executive and legislative branches to the Democratic Party.
And the outcome will have significant implications for commercial property performance. Right?
Eh, not really, say Cushman & Wakefield’s Ken McCarthy and Kevin Thorpe. “Property has performed well under both parties,” they write in a report examining the potential impacts that the election results could have. “Since 1979, NCREIF property index returns have averaged better than 8.5% annually under various Democratic and Republican administrations.”
Rather than elections, write McCarthy and Thorpe, “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.” Naturally, the priorities of the President and Congress can and do affect where growth occurs, but “it will be important to ‘follow the money’ to identify potential opportunities or risks.”
In other words, McCarthy and Thorpe advocate staying informed in the areas where policy is likely to shape the outlook for commercial property: taxes, trade, debt and, in the near term, additional fiscal relief amid the ongoing pandemic. The rhetoric of the two Presidential contenders makes a sharp distinction in their priorities, but the bottom line will be what a President Biden or a re-elected President Trump is actually able to accomplish in these areas.
One area where we’re likely to see little difference however the election turns is in monetary policy. The Federal Reserve has committed to keeping interest rates near historic lows until labor markets approach full employment.
This doesn’t mean the election itself can’t have consequences. “The largest threat to the financial markets, the economy and to property would be a disputed result that drags out well after Election Day, potentially sparking social unrest around the nation,” write McCarthy and Thorpe. It’s worth noting that such a dispute could arise from either candidate this year.
“The financial markets appear to have priced in the likelihood that there will be some delay due to mail-in votes, but the process could be prolonged, and the longer it stretches out, the greater risk the election result debate could create more of the kind of unrest seen across the U.S. in 2020.”
If the election is resolved quickly—say, within two to three weeks past Nov. 3—“it will likely have no material impact beyond a few shaky weeks in the stock market,” McCarthy and Thorpe write. They note that during the one-month “hanging chads” recount of 2000, “the Dow Jones Industrial Average (DJIA) fell 4% and the U.S. 10-year Treasury yield fell by 50 bps. The DJIA returned to pre-election levels a few weeks after Al Gore conceded to George Bush.”
For comments, questions or concerns, please contact Paul Bubny