Trump Presidency 2.0 - What Does this Mean for the Future of Commercial Real Estate?

• The potential for reduced global trade and fracturing supply chains
• Elevated volatility in financial markets
• The potential for interest rates globally to remain higher for longer
• A clear focus on (some) science and tech sectors
• Much talk but less action when it comes to dismantling ESG
• A looser regulatory environment that will undoubtedly benefit US corporates
• Less certainty on geopolitics

• Global trade will be choked off as widespread tariffs are now likely to be implemented, although some commentators suggest that Trump’s threat of tariffs may be the precursor of new trade deals, crucially with China.
• The US is the world’s largest source of Foreign Direct Investment (FDI), but a more US-centric economic policy and the inherent uncertainty of change is likely to slow outward flows of FDI at least in the short term and hence will negatively impact demand in global property markets.
• US corporate power is likely to be bolstered through profitability (a consequence of business tax cuts + steep tariffs on imports). Goldman Sachs estimated, pre-election that corporate America could pocket a potential quarter trillion dollars in future untaxed profits on Trump’s election. As well as elevating US corporate shares, enhanced profitability may drive M&A activity over the medium term, although a domestic market focus and a consolidation of power to US HQs is likely over the short term.
• Geopolitical risk and uncertainty are likely to be heightened – push and pull factors will fuel the reshoring of activity to the US and a rethink of global supply chains. Business leaders abhor uncertainty, so outside of critical sites, we are likely to see increased caution and inertia from global corporations as they await some order from the impending chaos of political change in the world’s largest economy.
• Deregulation will be aplenty going forward – notably in the energy sector and the tech sector with the rise of AI likely to be unencumbered with clear commercial and less clear ethical consequences.
• A Republican government is likely to be in favour of less regulation of US financial services. So we should expect a policy/regulatory environment which drives greater levels of ‘risk-taking’ activity – looser rules around capital saving, more mergers and acquisitions, weaker protection for consumers of financial services, more exposure from banks and other lenders to risk assets and divisive figures heading-up the key regulatory bodies.
• There will also be ‘demand-side’ implications that will affect financials service – higher disposable incomes stimulating greater levels of consumer spend, lower controls around availability of debt.
• Overall, we anticipate very little change to global business in the immediate short-term – business as usual – but as the campaign rhetoric gives way to reality (a transition eased by the red wave), the economic and operating environment is more likely to have teeth and consequence for both US and non-US corporates, their market opportunity and, ultimately, their global footprints.

• When Trump was last in the White House, he made use of tariffs in international negotiations to try to reshore manufacturing into the US. Given his campaign messaging, more tariffs appear likely. In the US, these tariffs are likely to result in more reshoring, relocation of production (and warehousing) by Chinese manufacturers to the USA. It will also encourage near-sourcing of goods from Mexico, driving up demand for warehousing there.
• According to Prologis, China-based third-party logistics firms and e-commerce firms have accounted for 20% of new warehouse leases in the US during the first three quarters of the year; this represents a sharp uptick. It is worth noting, though, that these flows could also be targeted if Trump believes that Chinese manufacturers are seeking to bypass USMCA trade rules.
• European retaliation to US protectionist policies might potentially support and protect European and UK manufacturing and increase local logistics demand.
• Proposed tax cuts on US domestic manufacturing, including incentives for machinery and R&D, could stimulate expansion of domestic manufacturing and help spur economic growth.
• In his victory speech, Trump vowed to “end wars” rather than start them. It’s unclear exactly what he meant by this. However, if resolutions can be found to the conflicts in Ukraine and the Middle East, this would have a positive impact on oil and gas prices, pushing down global energy costs. This could have a positive impact on manufacturing markets across Europe, particularly markets with a heavy reliance on energy/oil such as Germany.
• Trump’s stance on NATO may result in more spending on defence in Europe, supporting defence manufacturing and the associated demand for industrial and logistics space.
• “Drill, baby, drill!” A renewed focus on US oil production could reduce oil prices, cut transportation costs, and benefit domestic logistics. Lower transport costs could also counter inflationary tariff policies, helping support US manufacturing and boost consumer demand, supporting demand for imports (despite higher tariffs).
• Cheaper oil may slow the transition from combustion engines, reducing US demand for EVs. This could affect global EV battery demand and slow related investments in manufacturing EV batteries in the UK and Europe.

• Recent indications on interest rates globally have been that they may be sitting higher for longer, even before the election results. This was due to inflation surprising to the upside in Europe and potential from protectionist measures / fiscal expansion in the US, as well as the increased bond issuance forecast in the UK. Economist predictions are largely yet to adjust to this. Higher volatility should be expected.

• Cuts to corporation tax, further investment in R&D/moonshot projects and deregulation will boost the sector. Protectionist policies will lead to a diversification of supply chains away from countries like China.
• These policies could also penalise companies based in the US, where the ultimate parent is Chinese (Tik Tok etc). However, tech companies rely heavily on access to talent, which could be impacted by tighter immigration policies.

ESG – not quite as clear as it might seem:

• Trump has campaigned on such notions that “climate change is a hoax” and to end what he calls Washington’s “green new scam”. However, as Bloomberg noted “A victorious Trump can’t fully halt the country’s green shift,” and “campaign rhetoric aside, it’s clear that the sweeping 2022 climate law known as the Inflation Reduction Act has been built to withstand political attacks.”
• Some 90% of capital unlocked by the IRA has flowed into republican congressional districts and they may be reluctant to forgo these – even in a Republican-controlled House and Senate.
• In addition, we may see more investors continuing with efficiency upgrades with local laws, such as those in New York, with the Law 9 which sets carbon emission limits for buildings and imposes financial penalties on those that exceed the limits. Many investments of this nature focus on longer-term trends and the need to futureproof. Given that in four years’ time there maybe be a different mandate, this could do little to shift.