A New Sense of Optimism

In the run-up to the election we made note of the slow pace of decision-making in the commercial real estate universe.

Buyers, sellers, tenants and landlords were all feeling uncertain about the trajectory of the market depending on which way the election went. This is not unusual. In fact, there have been measurable reductions in sale and lease activity in every election cycle. This time around was no exception and given the extremely polarized political environment, the “election effect” that we wrote about is even more pronounced.

Now we find ourselves on the other side of it all and taking stock of the somewhat surprising results. The votes are finally counted and all the races have been called. Whether or not you are happy with the results, the fact is that you now know what they are and that brings a bit more clarity and certainty as it relates to the direction the economy next year, save a Black Swan event that reshuffles the deck. 

So, what can we expect from the new leadership in DC, at least in terms of issues related to commercial real estate? To be sure, taxes are front and center. The House and Senate will almost certainly bring legislation forward to extend major provisions of the Tax Cuts and Jobs Act of 2017 (TCRA). The slim majorities enjoyed by the Republicans in both houses of Congress will allow them to push the legislation through with simple majority votes using a process called Budget Reconciliation. This should happen in the first half of 2025, provided the votes break on party lines. If it does, it is also good for commercial real estate because it will reset bonus depreciation and R & D expensing rules, maintain the current estate tax threshold and keep income tax brackets at current levels. These, and other tax provisions, are otherwise set to expire on December 31, 2025. So, not having that likelihood circling over our heads should free up a lot of activity that has heretofore been kept in check.

Perhaps the biggest benefit of the election result is a sense of optimism we have detected about the business climate moving forward. To be sure, our observations are anecdotal at this point, but we talk to a lot of business owners every day and their optimism is impossible to ignore. They like the idea of the tax cut extensions and the prospect of a more business-friendly regulatory environment. As entrepreneurs and risk-takers, they welcome the freedom to pursue new growth opportunities under more predictable economic conditions. At this point, it is just a feeling, as the new administration is in the midst of transition. But, the expectation of a better business climate has given the market a much needed psychological lift, and our experience has shown us that psychology is a major market driver. 

Optimism inspires risk taking, and risk taking leads to the need for space, whether it be for lease or purchase. That increase in activity gives market participants more dots to connect in terms of tracking market trajectory, which leads to even greater confidence in long-term market performance. While there are no flat guarantees of market performance, the greater the confidence in market fundamentals, the more real estate decisions get made. 

One need only look back on the lackluster market activity of the past year to see the effects of low confidence. Hand-wringing over higher interest rates, high inflation and election jitters were enough to keep otherwise active market players on the sidelines. Sale and lease activity took a major hit in 2024 as decisions were delayed and business owners were otherwise distracted by uncertain conditions.

Whether this rediscovered optimism turns into measurable results remains to be seen, but the likelihood that it will has increased in just the past 30 days. So, that makes this is a good time to look at your future with a longer term perspective, one that contemplates better times ahead that could mean new opportunities for you and your business. Planning for the future is far less expensive than watching it pass you by. We can help you on the real estate side of the equation. Just give us a call to start the conversation.