Navigating Policy, Uncertainty, and Market Dynamics in the New Political Climate

SKIP AHEAD TO

• Return to the Office
• The Department of Housing and Urban Development
• Tariffs
• Interest Rates
• Market Uncertainty

A few months have passed since Donald Trump won the 2024 presidential election. In this time a much clearer picture has emerged of the contours of the Trump 2.0 presidency. Now that at least some of the uncertainty around what a Trump administration will look like has cleared, we can make reasonable hypotheses about the effect the new administration will have on the commercial real estate market and identify the remaining areas of uncertainty. In this article, we will walk through a series of topics relevant to CRE, laying out how they may play out during Trump 2.0.
Return to the Office
On his first day in office, President Trump signed an executive order ending remote work for federal employees. Figures like the Department of Government Efficiency (DOGE) co-chairs Vivek Ramaswamy and Elon Musk have highlighted this measure as a cost-cutting procedure likely to result in mass resignations of federal workers unwilling to return to the office. In addition, Donald Trump, as well as Ramaswamy and Musk, have suggested there are certain agencies that might be targeted for overall head count and/or  budget reductions like the Department of Education, Department of Justice and the Internal Revenue Service. On the other hand, federal employee unions have pushed back on these expectations and expressed their willingness to fight to maintain current remote-friendly working environments. It is unknown if DOGE will be successful in its stated goals, but Trump 2.0’s plans are unlikely to boost federal office demand in the D.C. office market, even if more workers are mandated to return to the office full time. 

Whether this promotion of in-person work expands beyond the federal workforce is uncertain.  There may be a general permission effect whereby federal return-to-office mandates spur increased in-person commitments in the private sector, but this is uncertain. There have been no signs of appetite to utilize federal incentives to drive return to work outside of the direct case of federal employees.

The Department of Housing and Urban Development
The Department of Housing and Urban Development (HUD), the federal agency tasked with community development and housing, will be a direct implementer of many of the Trump administration policies that will most directly affect the commercial real estate market. Trump’s choice to lead HUD, Scott Turner, reflects this focus on the commercial and development aspect of HUD’s mandate. Turner served in the first Trump administration as the Executive Director of the White House Opportunity and Revitalization Council. This council was the White House body tasked with realizing the vision of “opportunity zones” established in Trump’s signature Tax Cuts and Jobs Act (TCJA). Turner has explicitly highlighted this work and expressed its connection to his scope of responsibilities at HUD.

A specific mechanic in the opportunity zones framework is worth examining as it may turn out to play a large role in the HUD program. The TCJA created the concept of a qualified opportunity fund (QOF), a specific type of tax preferential development based in an area considered to be economically distressed. Investing in these types of real estate opportunities has blossomed into a boutique industry, with firms/funds such as Belpointe REIT, Pinnacle Partners Build to Rent, South Florida QOZ fund, Arctaris Impact Fund, and others specializing in allocating capital in this space. We can expect Scott Turner to increasingly leverage HUD to support these types of projects. 

Additional aspects of the Trump agenda for HUD that will affect the CRE sector relate particularly to HUD’s role in regulating rental properties and tenant protection laws. Under the Biden administration, HUD took an active role in promoting housing affordability and proactively counteracting residential segregation. These policies directly impact the character of the multifamily sector, shaping the regulatory and rent landscape where developers and owners of multifamily properties work. Turner’s prior work at the America First Policy Institute (AFPI) is relevant here. The AFPI centers its policy recommendations on a limited government approach centered on a light touch to regulation. Turner’s leadership of HUD is likely to draw on these principles and thus involve a partial or complete rollback of Biden fair housing rules just as during Trump 1.0, many Obama-era housing regulations were repealed.

Tariffs

One of the flashpoint policy promises of the Trump administration has been tariffs. Although the specifics of tariffs is unknown, it is expected that tariffs will be a part of the Trump 2.0 economic policy. During his campaign, Trump floated a universal tariff on imports, a policy guaranteed to have major economic impacts. Trump has also used tariffs as a negotiating tactic, discussing potential tariffs most recently with US neighbors, Canada and Mexico.

Tariffs are likely to affect the CRE industry in one of two primary manners. The first and most broad-reaching would be if tariffs were imposed in a truly universal way.  Large scale tariffs that reorient global trade and economic activity would affect commercial real estate from interest rates to overall economic demand. In such a scenario the CRE market could see a substantial downturn resulting from depressed economic activity.

The other plausible scenario is one where country and industry-specific tariffs affect certain parts of the CRE industry unevenly. For example, one plausible target for tariffs may be raw materials for the construction industry imported from China such as steel or other building materials. Tariffs on these construction inputs could suppress new construction and change the cost calculus for new developments. Another way targeted tariffs could impact the CRE industry is by reducing activity at certain ports or industrial facilities in the long term. Significant shifts in the balance of trade could impact ports that are crucial to specific countries.

Interest Rates
While the president cannot directly lower interest rates, Trump 2.0’s policies and influence over the Federal Reserve may still play a significant role. Members of the Federal Reserve Board, including the Fed Chair, are nominated by the president and serve terms of up to 14 years. With Jerome Powell’s four-year term as Chair ending in 2026, Trump will have the opportunity to appoint a successor whose economic philosophies align with his administration’s goals. This appointment could shape how the Fed balances its dual mandate of fostering economic growth and controlling inflation, both of which influence interest rate decisions.

The broader economic landscape under Trump 2.0 could introduce complexities that challenge rate reduction efforts. Proposed tariffs, for example, could increase costs for American consumers, reducing purchasing power. Similarly, restrictive immigration policies could exacerbate labor shortages, potentially driving up wages and fueling inflation—pressures that may necessitate higher, not lower, interest rates.

On the fiscal policy side, substantial tax cuts combined with increased defense spending could significantly widen the federal deficit. This scenario would require the government to borrow more, increasing yields on Treasury bonds and exerting upward pressure on interest rates. If investors respond to fiscal uncertainty by selling off government bonds, the resulting spike in yields could further elevate borrowing costs across the economy.

Higher interest rates, which could result from increased government borrowing or inflationary pressures tied to tariffs and labor shortages, would significantly impact CRE. Borrowing costs for acquisitions and development would rise, potentially slowing new projects and dampening property values. Investors may shift focus to higher-yielding, lower-risk assets like government bonds, reducing liquidity in the CRE market.

As with other aspects of Trump’s second term, the ultimate trajectory of interest rates will depend on the interplay between fiscal policy, monetary policy, and global economic conditions. However, the administration’s stated priorities suggest a potential for heightened volatility in this area.

Market Uncertainty 
The day after Trump won the 47th presidency, the U.S. stock market reached near record highs, with the market said to be reacting to expectations of a presidency more favorable to business through lower taxes and deregulation. However, the stock market typically experiences gains after a presidential election, as investors breathe a sigh of relief with reduced uncertainty and begin to anticipate and plan around the potential policies of the incoming administration.  But on the eve of the Trump presidency, there still remains some uncertainty as Trump has proposed a lot of changes from Biden administration policies, but only some are likely to be realized. Tariffs could reorient global trade to the US’s advantage, or they could prove to be a negotiation tactic. Trump could upend fiscal policy norms and push for lower interest rates, or prompt the Fed to raise rates to offset the expected inflationary impact of his proposed policies. Trump’s nominees could prove to be status quo breakers who change the way the government operates, or they could have no real substantive impact.

One certainty in times of uncertainty is the need for businesses to be flexible and maintain liquidity. The many known unknowns of the Trump presidency leave businesses needing optionality and to have cash on hand. Stay updated with CompStak to prepare for the changing market dynamics in commercial real estate!