Regardless of your feelings on the outcome of the 2024 election, if you own commercial real estate, there’s a good chance you’ll be affected in one way or another. We put together our thoughts on the opportunities and threats we see with the next administration and how you can be better prepared. If you have any questions or additional thoughts you’d like to share, we’d love to hear from you.
Tax Cuts Will Increase Liquidity
There is a widespread belief that the incoming Trump administration will provide a reduction in tax rates. If this occurs, it will provide businesses with increased liquidity that may lead to more investment in their commercial and multi-family space. Additionally, tax cuts may spur investment in new construction projects, but the labor shortage is not anticipated to improve, so deliveries may not necessarily increase.
Higher Interest Rates May Stick Around
Borrowing costs were trending downward over the summer after a series of Federal Reserve interest rate deductions, but they spiked up again leading up to and after the election. Faster-than-expected growth, driven by a strong economy and the anticipation of inflationary policies such as increasing tariffs, has kept rates high. If Federal interest rates need to stay higher for longer, commercial real estate borrowing costs will follow. Increased rhetoric undermining the Fed’s independence, combined with independent analyses showing that the deficit may increase significantly under the new administration, may drive up borrowing costs and lead to higher interest rates on commercial loans.
Moreover, the 10-year treasury yield dropped slightly after the nomination for the treasury secretary was announced, showing a vote of confidence in the pick. As always, more data will come to light over the next few months, but for now, we’re tempering expectations that interest rates will drop in the near term.
Local banks have managed to avoid significant CRE foreclosures so far despite higher interest rates and lackluster demand for office space. If interest rates don’t improve, it may force investors to finally sell underperforming assets at a discount, which would present opportunities for savvy CRE investors with strong asset management teams like EpiCity.
Shifting Regulatory Environment
Proposed deregulation will likely speed up new CRE projects and create opportunities for previously stalled developments. It’s not unreasonable to believe that Trump, a real estate investor himself, would create other programs that were favorable for CRE developers and investors. For example, Opportunity Zones were created in the 2017 tax plan, which provided incentives to invest in distressed, underserved areas in the US.
Changing Workplace Norms
It is still unclear how the demand for office space will change. While some companies are encouraging employees back into the office, it seems that flexible arrangements and work from home options are here to stay. We’ve seen strong demand in Flex Space due to its versatility and expect that trend to continue. If investors and developers are feeling optimistic and have the cash to avoid high-interest debt, there could be new opportunities for adaptive reuse projects similar to our Armour Junction project.
Increased Demand for Industrial/Warehouse
The industrial and warehouse sectors have been hot for years and we don’t expect that to change in the short term. The threat of tariffs has already got companies thinking about raising prices and trying to stock up on inventory which they’ll need to store somewhere. Georgia has been a particularly popular spot for warehouse growth, and while new deliveries have increased the overall vacancy rate, net absorption still remains positive. The warehouse sector has been commanding historically high average prices per square foot in 2024, but despite that, we expect the vacancy rates to decrease in 2025, potentially driving up prices further.
Final Thoughts
Every change in administration presents opportunities and challenges, and this one will be no different. With decades of industry experience, our team has navigated many changes in administration, consistently providing partners with informed guidance and proactive advice to help their properties thrive. Our ownership mentality and experienced team are what separates us from other traditional property management companies in Atlanta. If you’re interested in learning more about our approach to commercial real estate asset management and how we can help your properties prosper, please reach out.