The Impact of Elections on the U.S. Office and Multifamily Markets

October 2020
The upcoming presidential election is just one of several issues causing uncertainty for business leaders at a tumultuous time in U.S. history. A question often asked is how the election will affect the U.S. commercial real estate markets. This question tends to come up every election season, and there are various theories that have been proposed regarding how political control impacts commercial real estate.

The Impact of Elections on the U.S. Office and Multifamily Markets
Key Findings:

While various theories have been presented regarding one major political party or the other having a greater impact on U.S. commercial real estate, a look at real estate returns under presidents of each party does not show a significant advantage for either party. Over the past 40 years, annualized total returns averaged 9.0% under Democratic presidents and 8.2% under Republican presidents.

Though there may be some correlation between the political party in control of the White House and Congress with stronger office or multifamily market fundamentals, correlation is not causation—there are economic and geopolitical factors that likely have greater influence. This may come as a relief to investors who are concerned about the potential impact of November’s elections on the commercial real estate market.

The most favorable office fundamentals for asset owners over the past 20 years occurred under a Republican-controlled Congress, with U.S. office absorption averaging 40.8 million square feet per year, significantly higher than the 20-year average of 16.1 million square feet per year. Meanwhile, in the years under a Democratic-controlled Congress, office absorption averaged negative 6.3 million square feet per year. With this small data set, it would seem that a Republican Congress generates more office demand than a Democratic-controlled one. However, the fact that a correlation exists between Republican control and higher office demand does not necessarily mean that Republican control was the cause of increased demand.

During the eight years under Democratic President Barack Obama, multifamily effective rent change averaged 2.7%, significantly higher than the 20-year average of 2.0% and the 1.6% average under Republican Presidents George W. Bush and Donald Trump. While this data would seem to show that Democratic control was more favorable for multifamily market fundamentals, as is the case with the office market, it is likely that exogenous events are a more powerful influence on the multifamily market than are the policies of either major political party. A major factor contributing to strong multifamily rent growth was the proliferation of high-paying technology jobs in major U.S. multifamily markets.

While examples can be found of stronger market fundamentals under various scenarios of control of Congress and the White House, it is important to consider the slow pace of change in the federal government. The lag effect from the time a particular policy is enacted to its eventual influence on commercial real estate diminishes any direct relationship between political control and commercial real estate market fundamentals. There is no question that sometimes policy decisions play a role in influencing future market conditions—but neither party has demonstrated a clear, causal link to greater or weaker office and multifamily fundamentals.

Elections bring economic uncertainty, and this effect may be even more pronounced for the particularly tumultuous 2020 election cycle. However, there is no discernable trend of greater or weaker job growth in presidential election years nor the years preceding or following them. In fact, job growth in election years has averaged 1.7 million, slightly higher than the 40-year average annual job growth of 1.5 million.

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