With the GOP kicking off its administration, the level of uncertainty in the commercial real estate sector has gone through the roof. Even with the experience that the new POTUS has in the industry, it is still hard to predict the direction it will take under his leadership.
While there is no doubt that the economic changes promised by the new administration will have a positive impact on the sector, the questions remain as to when, how, and to what extent. Even when some policies such as cutting taxes and increasing infrastructure spending look favorable, most are raising questions about the future of the sector.
Analysts are predicting that Trump policies, especially on foreign trade and immigration, are likely to hamper growth in the sector. If America is going to adopt the foreign antitrade policies as presented by the new administration, international demand for US commercial real estate will likely decline.
In the short run, lower tax revenues and increased infrastructure spending are likely to result in budget deficits, while locking out immigrants will hike the cost of labor for American companies. All these are likely to have an indirect negative impact on the commercial real estate sector.
The bright side of Trumponomics
On the bright side, Trump’s plan to decrease the burden of financial regulation– especially via the Dodd-Frank Act–will increase the flow of capital to investments including the commercial real estate, facilitating a construction boom.
Also, if the new administration keeps its promise of creating employment and bringing jobs back to America, both the residential and commercial property values will go up. This is because with more jobs coming up, the demand for commercial space will increase. Trump’s plan to increase the demand for American goods by imposing tariffs on imports is also a plus to the sector.
With more Americans gaining employment and the demand for American goods rising, there will be a need to construct more malls, stores, industrial parks, factories, and offices. The high demand is likely to raise the prices of commercial structures, thus increasing value for investors.
Trump is also unlikely to introduce policies that favor commercial real estate given his background and investments in the sector. However, nothing is sure, and all we can do is wait and see what will happen.
A glimpse of the commercial real estate market in Fairfield, CA.
While the uncertainty of Trumponomics applies to the sector as a whole, the effects are likely to differ according to a specific region’s dynamics. The states with the highest manufacturing output will be the hottest areas for commercial real estate investment if the GOP implements policies that favor local manufacturers.
According to a 2016 study by the Center for Manufacturing Research, the manufacturing sector in California accounts for 11.3% of its output and employs 7.9% of its population. In 2015, the study estimates that there were 1,271,000 manufacturing employees in the state. A report by the US Bureau of Economic Analysis shows that in 2014, there were 35,876 manufacturing firms in California.
The city of Fairfield has its fair share of manufacturing, accounting for 7 million square feet of office, retail, and industrial development. Since 1995, the city has seen a rapid growth in manufacturing, partly due to the availability of development space and cheap labor. According to the City Manager’s office, the Travis Air Force Base, which is among the largest employers in Fairfield, is a significant boost to the city’s growth.
With Donald Trump in office, the manufacturing sector in the city is likely to expand, leading to an increase in demand for commercial space. This means that there is a high likelihood of a construction boom in Fairfield and in most parts of California. Trump’s promise to increase military spending may also lead to the expansion of the Travis AFB, thereby increasing the economic activity and demand for commercial structures in the city.
The Power is Now is here to help you make informed investment decisions on commercial real estate in Fairfield and the rest of California. Subscribe and follow us to get firsthand information on the latest developments in the sector, including a detailed analysis of the effects of the anticipated Fed rate hikes.
ERIC LAWRENCE FRAZIER, MBA
President and CEO
NMLS 461807 CAL BRE 01143484
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Eric Lawrence Frazier, MBA
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