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Political Changes Begin to Play Out in Real Estate

Assessing President Donald Trump’s impact on commercial real estate in his first 100 days, a recently released nationwide report by brokerage firm Cushman & Wakefield offers a mix of potential good news and bad news.

The company’s Washington, D.C.-based chief economist, Kevin Thorpe, points to several positive impacts on U.S. real estate and other economic markets. Those include a nationwide 2.4 percent increase in commercial real estate values since the election, and a 10 percent rise in the S&P stock index during the first 100 days.

Cushman researchers estimate that every $1 increase in the stock market boosts consumer spending by 3 cents, and a stronger consumer typically has a positive (though lagging) multiplier effect on demand for real estate.

While the Cushman & Wakefield report doesn’t specify impacts on San Diego County, it does offer assessments of some key policy issues that could impact the local economy — and in turn, prospects for real estate demand — moving forward:

Defense spending — Trump’s recent initial budget request was for $54 billion in additional defense spending. The rollback of the defense budget sequester and increases in defense and Homeland Security spending should benefit commercial real estate investors in jurisdictions — including San Diego — that have historically attracted these budget dollars.

Trade policy — Potential changes to U.S. trade policy, including a pending renegotiation of NAFTA, are very much on the minds of local leaders looking to safeguard a growing cross-border economy with Mexico. Trade-related movement of goods is an essential part of the industrial market, and trade policy uncertainty can slow companies’ site selection, leasing and investment decisions, especially in corridors adjacent to major ports of entry.

Border tax adjustment — Because it would levy a 20 percent tax on all imports of goods and services into the U.S., Trump’s proposed Border Adjustment Tax (BAT) is opposed by the auto, energy, aircraft and retail industries. Industries feeling pinched by tax policies might not be in the mood to expand their real estate footprints.

The wall and immigration — Trump’s plan for a 1,250-mile-long wall along the U.S.-Mexico border — which reportedly could begin construction in Otay Mesa — has yet to move forward but might be funded through a destination-based “cash flow tax” applied to U.S.-Mexico trade. The wall and other immigration crackdowns could raise import prices and disrupt the flow of workers, including those in the H-1B visa program needed by skills-heavy technology sectors.

Health care reform — What replaces Obamacare — if it is actually ever repealed — is still very much up in the air. Thanks to this uncertainty, new health care property development may cool if it is not already funded. Also, medical office and other health care assets could trade multiple times as capital chases a limited supply of product; and hospital merger-and-acquisition activity, which slowed nationwide in the first quarter of 2017, could stay soft.

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