According to one of the largest global real estate surveys, the number one trend affecting commercial real estate (CRE) this year and beyond is political disruption. That is because the United States is not only in the thick of it but also is causing a lot of this disruption.
Political instability within the U.S. government could have an impact on industrial real estate because it could affect infrastructure spending. Is the government too distracted to give any real thought to infrastructure construction? If a slowdown does occur, will that push legislators to cut infrastructure spending rather than increase it? Here’s what CRE pros need to know.
Investments in Infrastructure Made the Top Five Trends of 2017
Just after retail disruptions, fears about future investments in infrastructure made the top five list of concerns for CRE in 2017. Since the signing of the American Recovery Act, the government has been increasing spending to improve the nation’s infrastructure. In fact, the “Summer of Hell” was expected in New York City before work even began on the complete renovation of the world-famous Penn Station.
Now that the work is under way, people will feel the pain of construction for some time, but when completed, it will vastly improve the 100-plus-year-old rail station. That funding was provided several years ago. Will future budgets have to slash and burn such infrastructure spending?
If they do, it could have an enormous affect on CRE. Many of the public works projects that have been funded over the past two decades have relied heavily on public–private partnerships. Politics is the number one concern for CRE this year because it is just one of the ways that the current political climate in the United States could have a negative impact on infrastructure investments.
Politics May Hinder Public–Private Partnerships
According to a 2017–2018 survey commissioned by CRE professionals, the impact on commercial and industrial public–private partnerships will affect real estate investments outside of the United States as well as foreign investments within the United States. Within the U.S. borders, projects that are ongoing to repair bridges, ports, and roads across the country may now be in jeopardy.
Changes to U.S. immigration policy are creating reticence on the part of foreign investors who have been a huge source of investment in U.S. CRE. In fact, foreign investments played a significant role in helping the U.S. real estate market stabilize. Additionally, in the previous two years alone, there was a nearly 2.5% increase in CRE activity. If businesses can no longer rely on government funding for these public–private projects, what will happen to the private investors?
Uncertainty over Government-Funded Infrastructure Projects May Push a Slowdown
This political disruption and worries about budget cuts all point to greater uncertainty. This uncertainty could overwhelm the CRE market, pushing a slowdown in commercial investment — the likes of which we have not seen since the recession. Commercial investors will have to consider their local and state government investment strategies in the face of federal cuts in order to be wise about when and where to invest in infrastructure projects over the next few years.
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