June 22, 2018
It seems as if more than just sunshine and tan lines are in store for Summer 2018.
Last Friday, President Trump issued tariffs on $50 billion dollars in Chinese imports, inciting a trade tiff between two of the largest economies in the world. But what does this mean for the state of commercial real estate? The market is facing some short-term effects following President Trump’s tariff decision. In short, this raises concerns specifically for construction and infrastructure projects, as well as key commercial real estate property sectors.
CCIM Institute Chief Economist K.C. Conway says that “commercial real estate professionals should prepare for a 10-Year Treasury of 3.5% – 4% and higher permanent debt costs, as well as higher construction costs, which may make buying and enhancing existing assets rather than new construction the better investment play.” He goes on to say, “these higher prices for commodities like steel hurt the automotive industry, as well as construction and infrastructure projects. We are already seeing more than 5% materials inflation in construction and I think, given these recent actions, it may rise to 10%.”
Conway predicts that GDP will fall below 3% in Fall 2018, despite being the strongest quarter annually. However, if Trump succeeds, Conway says, “we are on for 4% GDP in 2019 with exports rising.”
Currently, he anticipates that Trump’s tariffs and counter tariffs will not only add to the now increased 2.8% annual inflation that caused the Fed to raise rates in June, but also lay the foundation for two more hikes in the second half of 2018.
“We are heading into a full blown, tariff-led trade war,” according to Conway. “It’s complicated, but the underlying issues hold U.S. security and economic power in the balance. The public doesn’t appreciate the complexities,” and it seems that “consumers are yet unphased.”
This summer is shaping up to be an essential marker for the success of the commercial real estate industry. It is unclear if Trump’s warning shot will derail the current balance of the CRE market or not.
For comments, questions or concerns, please contact Zoe Stutman