Darin Mellott
It is commonly believed that during a federal election year, all activity in the commercial real estate sector comes to a halt until a new president is elected. This includes investments and capital deployment, as there is uncertainty about how the policies of the new administration will affect this industry. However, according to an analysis by CBRE, this may not be entirely true.
CBRE’s Head of U.S. Capital Markets Research Darin Mellott explained that they were motivated to conduct this analysis because they often heard investors citing the election as a factor influencing their expectations for H2 2024. However, after examining commercial real estate investment activity and values during election years since 2000, CBRE found “no material change” in these factors before or after federal elections.
The Methodology
To reach their conclusion, CBRE used statistical methods to analyze various variables such as deal count and cap rates across different property types and markets before and after elections. They also considered lagged impacts by studying two quarters following elections but still found no significant impact on investment activity or values.
What Drives CRE? Macroeconomics
The only exception noted was during the Global Financial Crisis when broader macro trends like interest rates had more influence on changes in capitalization rates than political events did.
While federal elections may not directly affect CRE performance at large scale levels like investments or sales volumes; policies enacted while an individual holds office can have long-term effects on property values through government spending decisions (e.g., budget deficits), tax regulations for individuals/corporations etc.. Therefore it’s important for investors to keep track of potential policy changes that could impact their properties over time.
What it Means for Investors
So why do many assume that federal elections have such a direct impact on CRE? According to Mellott , media coverage plays a significant role in keeping presidential campaigns at top-of-mind every four years which leads some investors into thinking that others will change their approach because of the election.
However, Mellott advises against delaying strategic property decisions solely based on an upcoming federal election. In fact, with favorable pricing opportunities in a recovering market currently available, it may be wise for investors to take advantage of them rather than waiting for political uncertainties to pass. This analysis shows that federal elections do not have as much impact on commercial real estate as commonly believed and should not be a major factor in decision-making processes.
