Implications of a Trump/McConnell/Ryan Administration on DC's commercial real estate market
The Bisnow real estate e-letter posits the DC commercial office market (and the area economy) will benefit from a Trump presidency. From the article:
Avison Young US capital markets managing director John Kevill expects to see a pickup in leasing activity from the GSA, government contractors, consultants and lobbyists. "His promise to spend on infrastructure, reinvigorate the military, hire more ICE agents than ever before," John says, "will lead to a growth in the local government footprint."
He says this may result in a resurgence in demand for existing suburban office stock that has largely been considered functionally obsolete. He also predicts a growth in lobbying for industries like healthcare and tax reform, leading to increased demand for trophy CBD office space.
Elizabeth Norton's research team at Transwestern looked at the market impacts of every election since World War II, and found generally greater local office demand when the White House was in Republican hands.
Although, she says, this is largely due to the timing of events like military conflicts and recessions, and cautions against looking too much into the party in power. "It's hard to speculate the true impact at the end of the day, but historically we find it's events, rather than the president, that truly impact the market[.]"I am not disposed to be as positive.
(This blog entry from 2015 discusses the state of the local economy within DC and this recent post is about the high cost real estate market within the city making it difficult to attract businesses seeking lower cost locations, "Choosing urbanized places vs. choosing DC as a place to locate significant headquarters business operations: Marriott and CoStar.")
While there is no question that "events' shape what happens with government and its growth and post-9/11 hyper growth of the federal government, especially the national security elements, are the perfect example.
For example the Washington Post series from 2012 on the rise of the homeland security function ("Top Secret America") outlines how the rise of the National Security State in the post-9/11 environment has significantly benefited the DC region, and more IT-related military contractors (like SAIC) are relocating their headequarters to Northern Virginia to be closer to their clients. (Also see "Montgomery County's real jobs problem is that it is an adjunct, not a full-fledged, member of the military-industrial complex.")
But while that happened, there has been plenty of stinting on other areas of government, and plenty of animus towards investing in large scale projects such as a unified campus for the Department of Homeland Security or a new campus for the FBI.
Plus military installation consolidation away from Arlington County, Virginia has crushed their commercial office market in Crystal City especially, and has for many years. And Congress hasn't been much open to paying extranormal market rates for federal leases in the Washington area ("A follow up example with regard to Metropolitan Revolutions: the National Science Foundation moving to Alexandria").
It's important to distinguish between what we should call the Legislative or Congressional Republican Party and the Presidency.
Increasingly year after year since the Gingrich Speakership in the early 1990s, Congressional Republicans haven't been much interested in "investing" in the federal government, outside of projects in their districts or state, and they especially haven't been interested in investing in federal facilities in DC in particular.
-- "Neglected National Mall Languishes," Associated Press, 2009
-- "Washington's Boom Goes Bust," New York Magazine
-- "Federal Government Downsizing Sends D.C. Region Tailspinning," Falls Church News-Press
-- "Will Congress Pull the Plug on Homeland Security's Move to St. Elizabeths," Government Executive
-- "New Year's Post #3: an illustration of the decline of the federal role in DC's real estate market (at least right now)"
That kind of sentiment was expressed earlier in the year by Iowa Congressman Ron Blum, animated and angry about the success of DC's local economy.
With conservative control of the House and Senate I can't see them becoming pro-government in terms of agency expansion and real estate, especially in DC, or in Virginia or Maryland, both of which went for Clinton, although in Virginia it was much closer and outstate Republicans still control the state government more or less.
Another project to watch will be the final selection of a site for a completely new FBI headquarters campus. Maryland, a very Democratic state, has a Republican Governor, while Virginia's Governor is a Democrat, but the State Legislature is dominated by the Republican Party.
The Washington Business Journal ("How Donald Trump's victory might affect the FBI headquarters competition) figures the project will land in Maryland. From the article:
Clinton is a close friend of Virginia Gov. Terry McAuliffe, and her running mate, Virginia Sen. Tim Kaine, is a former governor of the commonwealth. It stands to reason that if Clinton had defeated Trump, it would have significantly boosted Virginia's shot at landing the 2.4 million-square-foot FBI headquarters.That the federal government doesn't do traditional capital budgeting is another problem. See the past entry "We are all asset managers now."
Maryland, long the front-runner for the $2 billion-plus HQ project, should remain there with Trump's victory.
But, with the Trump International Hotel in the Old Post Office Building, maybe President Trump will be inclined to push for real estate investment in DC. Or not ("Protestors gather outside Trump hotel in DC," WUSA-TV)
What about the residential market? As far as DC's residential real estate market is concerned, Republicans tend to live in the suburbs, Democrats in the city. Maybe it will stay about the same, maybe it will decline. I don't think that it will continue to be extranormally successful.
I can also see the potential for a rise of Mideast-policy-related terrorist incidents in the U.S., which mostly has been immune from it, outside of "homegrown" incidents (Orlando, San Bernardino, etc.).
If such incidents happen in DC, it could have major implications on the residential real estate market because for safety reasons, people may choose to not live in the city.