• Americas

How Will Possible Legislation Changes Affect Commercial Real Estate?

By David C. Smith, Senior Director, Occupier Research, Americas

In early August, the Trump administration announced its support for proposed legislation known as the RAISE Act that would enact several changes to U.S. immigration policy including:

  • A hard limit on the number of refugees allowed to enter the country each year (50,000)
  • A reduction in total legal immigration over the coming decade
  • A change in how immigrants are prioritized and granted access to the U.S.

These policy modifications could impact how many people are granted access into the U.S. and could alter the types of skills that are being prioritized as part of immigration policy. Both changes would have significant impact on the real estate industry and corporate occupiers around the country.

Immigration Is Significant Not Only for Gateway Cities but also for the West, Midwest, and Texas

Just under half of all U.S. population growth in 2017 will be due to immigration. Historically, immigrants have been drawn to the largest six gateway cities in the U.S.: Boston, Chicago, Los Angeles, New York, San Francisco, and Washington, DC. Not only do immigrants make up a significant proportion of the populations here (34%), but they have also driven population growth in the decades from 1995–2015.

However, recently immigrants are moving away from the country’s gateway markets. For instance, in 2006, 41% of people obtaining permanent resident status resided in one of the six gateway markets. However, in 2015 the percentage had dropped to 36%. During that same decade, there was an increase of over 3% in the number of people obtaining permanent resident status in seven cities clustered on the West Coast, in Texas, and in the Midwest.

Positive Correlation Between Cities with Large Immigrant Populations and Real Estate Fundamentals

The five non-gateway cities with the most new immigrants between 1995-2015 not only saw a 46% increase in employment over the same time period (well above the average of all U.S. markets), but also saw more robust office market growth. During 1995-2015, annual net absorption in these five cities was three times the average of all other cities (1.3 msf per year vs. 400,000 sf), and it has actually accelerated over the past five years (2.4 msf per year).

In addition, the size of the local population affects local GMP, demand for housing (including apartments), and consumer spending (retail/eCommerce).

Real Estate and Related Industries Disproportionately Affected by Immigrant Labor Force

Certain industries are likely to be disproportionately impacted by changes in legal and/or unauthorized immigration. While legal, foreign-born workers make up roughly 17% of the U.S. labor force, they fill 31% of buildings/grounds cleaning and maintenance jobs, and 25% of construction positions. Of course, construction jobs are clustered in cities that have experienced disproportionate development.

Skilled Labor Programs

Skilled, foreign-born workers are most likely to be in management/business occupations driving office demand. The H-1B visa program–which accounts for the second largest number of work visas, behind NAFTA-related visas–provides educated talent to technology and services firms. Half of all H-1B visa holders reside in just five states: California, New York, Texas, New Jersey, and Illinois.

Outlook

It remains to be seen what, if any, immigration policy changes will be implemented. Some lawmakers, including members of the President’s party, came out against the proposed RAISE Act immediately. However, if the changes lower the number of work visas available, those reductions will likely create additional challenges for occupiers already facing full employment. Fewer foreign-born workers in the U.S. will also create challenges for the real estate industry in terms of meeting construction demand and supplying other critical roles.

In Recent News…

The Trump Administration also announced that the Deferred Action for Childhood Arrivals (DACA) program is being rescinded.

This policy change has the potential to impact approximately 800,000 foreign-born residents and their employers, as Dreamers would lose their work visas. The turnover cost for businesses replacing these workers could top $3.4 billion², as it is estimated that 92%¹ are currently in the workforce, are more likely to be working in white collar jobs than the general unauthorized immigrant population⁴, and are most likely to be in gateway cities such as Los Angeles, New York, and Chicago.³ The Center for American Progress estimates that ending DACA would cost U.S. GDP more than $450 billion over the next ten years.

It should be noted that President Trump has expressed interest in a legislative solution to this issue and there is broad Democratic, and some Republican, support for Congressional action prior to March 2018.

For more information, read our full report: U.S. Immigration Policy: Potential Impact on CRE.

Footnotes:
1. Tom K. Wong, University of California, San Diego; 2017 National DACA Study
2. Immigrant Legal Resource Center; Money on the Table: The Economic Cost of Ending DACA
3. U.S. Citizenship and Immigration Services
4. Migration Policy Institute

 

David Smith is the Senior Director of Occupier Research for the Americas. Mr. Smith produces occupier thought leadership content for the Research Center of Excellence and directs a program of market presentations, written analysis, surveys, forecasts, and data collection that supports Global Occupier Services and the brokerage business, as well as advance the strategic plan in Americas Research.

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