By Noble Carpenter, President, Investor Services and Capital Markets, Americas
Trump was an unconventional candidate, and he will be an unconventional President.
It’s too early to tell what the Trump presidency will mean for the United States, and real estate in particular, however his cabinet nominees are experienced and/or savvy business leaders, which is encouraging. I’m cautiously optimistic.
I am encouraged that the new administration will have a positive impact on the economy, which will continue to support our industry. Real estate performance is highly correlated to economic growth, so getting the U.S. economy growing faster would be extremely helpful to real estate in general. Globally, the U.S. economy is well positioned and growing faster than most other economies around the world.
An upside scenario to a Trump administration is that confidence is returned to our business leaders, who will increase investment in their businesses, grow GDP and have a positive impact on commercial real estate. President Trump has stated a desire to simplify the tax code, repatriate off-shore profits and rebuild confidence in our finance sector. A healthy and vibrant financial industry is important to drive economic growth. This would be especially helpful in New York City, the money center of the world. The key will be balance and hopefully a Trump administration does not become overly nationalistic and trigger a trade war.
In Europe, we are still understanding what Brexit means. Economically, UK GDP growth has been stronger than expected and it has largely been a non-event to date. The big issue is what happens with other members of the European Union and Brexit’s potential to cause nationalistic ripple effects. France and Germany have national elections this year, and there is strong nationalist dialogue in both.
Right now, I continue to like the gateway and large regional markets in the U.S.; New York, San Francisco, Los Angeles, Boston, and Washington, D.C. are all well positioned. Not only are these markets large and liquid, they have the basis for strong growth and absorption. Los Angeles was slow to come out of the recession but has had tremendous momentum.
While San Francisco’s tech-based economy slowed in 2016, information and technology will continue to be major drivers to the U.S. and global economy, and we are already seeing signs of the market recovering. Washington DC will likely grow under a Trump administration as the U.S. begins to realign its global priorities and shift its focus from the previous eight years. New York City’s diversified economy is much less reliant on the FIRE industries, and its growth is being largely driven by the TAMI industries. Likewise, Boston’s financial-, biotech- and education-based economy is performing well.
Foreign investment has continued to be a driver in each of these markets – and beyond. I don’t foresee too much change around foreign investment activity in the short term, as overseas investors continue to value the strength of our economy. U.S. real estate markets are large and diverse, which increases liquidity. Information is abundant and transparent. And we have the rule of law. All of this comforts investors.
Overall, foreign investment was big in 2016 – Canadian, Chinese, German, Japanese, Korean and Middle Eastern investors – were all active. In 2014, cross-border flows accounted for $42.2 billion in U.S. sales volume. By 2016, those flows were up to $62.6 and now account for 14% of U.S. sales volume. Chinese investors have been very active in the U.S. and are still feeling their way. We are in the early innings with China. Despite potentially closer ties between the U.S. and Russia, I don’t see a significant impact from Russian capital flows on commercial real estate. Russian investment has mostly been in the residential sector.
The U.S. real estate market is healthy and should ably withstand any short-term turbulence that change inevitably brings.
Noble is President Investor Services and Capital Markets of the Americas at Cushman & Wakefield. Noble has more than two decades of extensive capital markets leadership and cross-border transaction experience, which involves aligning the strategic direction of the firm’s Capital Markets teams that include: investment sales, mortgage brokerage, equity placements, corporate and structured finance and investment banking businesses.