Looming U.S. Election, Interest Rates Causing Uncertainty in Commercial Markets

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With the U.S. presidential election less than one week away, the question of what will happen when voters go to the polls is not surprisingly having some effect on the U.S. real estate market.
 
"The market is transforming for the worse due to many domestic and global factors, including the presidential election, and may take some time to stabilize and take a more reliable direction," said Tony D. Kamath, MRICS, principal and managing director, International Valuation & Advisory LLC, New York, a respondent to a recent RICS commercial property survey. "But in every presidential election year, the market tends to be cautious because people wait to see what the results are, and this year isn't any exception. Hopefully, the market will improve after the election, whoever wins, when we see the outcome and future direction emerging from that," added Kamath in responding to the Q3 2016 US Commercial Property Monitor.
 
And action on interest rates by the U.S. Federal Reserve Board is probably not far behind the election results, another respondent predicts. "The probability of a post-election Fed move on interest rates seems high, both because of the deferral of a move from the last two Fed meetings as well as the need to normalize the rate structure," says Anthony C. Iaccio, FRICS MAI, a principal at Blake & Iaccio LLC, New York. "It is likely that the early-on negative effects of a rate rise will ripple through the economy, particularly the real estate and foreign exchange markets. Increases in the dollar versus the Euro and the Yen will dampen investment in New York City and may trigger a cascading effect and depress capital value change since the recent past favorable exchange rate structure will likely no longer be in place," Iaccio continued. "And with the slowing or potential reversal of capital value growth, we would expect to see cap rate expansion since cap rates are already at historic low points."
 
In other results from the RICS survey, though the U.S. retail real estate sector lagged in both the investor and occupier market, occupier demand continued rising overall at a steady level and tenant interest rose strongly in the office and industrial sectors.
 
The retail sector is the only one in which rents are expected to trend downward in coming months, with demand sluggish and the supply of available space continuing to rise, according to the report, which covers Q3 2016 and is based on a sentiment survey of RICS qualified industry professionals. But on the whole, 22% more respondents reported an increase than a decrease in occupier demand while interest from international investors continued growing firmly, helping investor demand rise across all sectors.