Real Estate
U.S. Real Estate: The Real Estate Recovery Meets the Disruptor-in-Chief
The real estate recovery continues to gain ground, but at this moment the new U.S. President—and the potential impact his policy agenda could have on property fundamentals and values—is top of mind.
Executive Summary
ECONOMY
- While the estimate of real GDP growth in the fourth quarter declined from the third quarter, the deceleration seemed to be more around near-term business uncertainty and inventory management while consumer spending stayed buoyant. Consensus forecasts for 2025 real GDP growth have risen steadily from 1.7% to 2.1%.
- The unemployment rate is expected to stay close to its recent run rate and likely to stay tight if mass deportations further constrain labor availability. Markets generally expect the President’s policy stances will be inflationary, particularly the recent tariff announcements.
- Volatility in credit markets reminds us that caution especially in the face of resurgent investor “animal spirits” is necessary. Policy reform, even those instituted through “emergency executive powers”, faces significant political, judicial, and bureaucratic friction.
PROPERTY MARKETS
- Despite the Trump administration’s aggressive rhetoric around immigration and tariffs, transaction activity continues to increase while values continue to stabilize—both hallmarks of a real estate recovery.
- Cap rates across all major property types have risen markedly since the Fed began raising interest rates, reflecting expectations around a secular shift in base rates (i.e., higher-for-longer) although the cap rate risk premium is compressed relative to historical averages, similar to other risk assets.
- Given the combination of tenant demand driven by solid corporate and household balance sheets and muted development activity, there is strong potential for property performance to top the current modest forecasts over the near term.
