Executive SummaryJoe Biden has been declared the winner of the 2020 presidential race. Control of the U.S. Senate and President-elect Biden’s ability to deliver on his priorities will depend on the results of two Senate runoff races in Georgia on January 5, 2021.
CBRE expects that the U.S. Congress will pass an additional economic stimulus package closer to $1 trillion if Republicans retain their Senate majority. The stimulus could be up to $2 trillion if Democrats gain Senate control. This will influence the U.S. economy’s near-term growth and the level of Asian exports to the U.S. but it is not essential. The U.S. economic recovery looks more and more self-sustaining, as does that of APAC.
U.S. presidents have substantial authority when it comes to trade and foreign policy, regardless of which political party controls the Senate. Under the Biden administration, we expect a mild lessening of trade tensions between the U.S. and China. It is possible that Biden would seek to revive the Trans-Pacific Partnership Agreement (TPP).
Asia remains capital rich and we expect Asian investors will be attracted to a wide range of property assets, led by offices in major cities, logistics, multifamily, life sciences facilities and data centers. More foreign investors will be emboldened to explore real estate opportunities in Asia Pacific, supported by the region’s relative success in containing the pandemic.
Economy & Potential Stimulus
The presidency and a Democratic Senate would enable Biden to enact large portions of his agenda. Most immediately, a larger federal stimulus package to support the economy would boost real estate demand in the near term. This provides some upside potential to CBRE’s 4.6% U.S. GDP growth forecast for 2021. More aid to cash-strapped state and local governments could reduce pressure to raise taxes on real estate. However, the popular 1031 tax-free exchange program would be threatened and luxury retail, energy, finance, defense contractors and tech could face headwinds from tax and spending policy changes and increased regulation.
If Republicans retain the Senate, the Biden agenda will be checked and have a more subdued effect on the broader economy and commercial real estate. A more limited fiscal stimulus package would be enacted, with less state aid and the prospect, at some point, of higher state and local real estate taxes. On the other hand, the 2017 personal and corporate tax cuts would remain in place. Like any president, Biden will also have power to influence spending priorities and the regulatory environment and to enact trade policy. The potential for less trade friction, especially with U.S. allies, may be helpful as the global economy pulls out of the pandemic-induced recession. Overall, markets seem to view “split government” favorably and this scenario largely supports CBRE’s forecast of 4.6% U.S. growth in 2021.
Biden will have power to shape and enact trade policy. The potential for less trade friction, especially with U.S. allies, will be helpful as the global economy grapples with a pandemic-induced economic slowdown. While both U.S. political parties will continue to challenge China’s trade and business practices, the threat of additional tariffs will be diminished under Biden’s presidency. This will give some degree of certainty for Asian exporters, even if many existing tariffs remain in place. Furthermore, the Biden administration is expected to work through multilateral institutions, such as the WTO, to adjudicate trade disputes. Multilateral trade deals, such as the TPP, also bear watching. While Biden has been a strong TPP supporter in the past, during the presidential campaign he stated a desire to change the terms of the trade deal.
The Bottom Line
The U.S. election will not alter the economic recovery that is well underway across Asia Pacific. The near-term impact on commercial real estate in the region will depend on the outcome of two Senate races in early January. Should Democrats take control of the Senate, there is some near-term upside to CBRE’s 2021 global GDP forecast due to the likelihood of additional fiscal stimulus. Should Republicans retain control of the Senate, we still expect a level of fiscal aid that supports CBRE’s 5.1% global economic growth forecast for 2021. Perhaps most importantly, Asian exporters will likely have a sense of increased certainty and reassurance regarding the future of U.S. trade with its traditional allies and with China.
With fears of deglobalization moderating for now, more foreign investors will pursue investment opportunities in Asia Pacific, supported by the region’s relative success in containing the pandemic. This will filter through to stronger demand for manufacturing and logistics facilities, especially in China, India and Southeast Asia. India’s office market also should benefit from American and European corporate outsourcing policies, boosted by improved communications technologies.
As the world’s largest and most liquid real estate market, the U.S. remains a preferred destination for Asian outbound capital. While Biden’s presidency may encourage some investors to move out of wait-and-see mode, ongoing travel restrictions will limit Asian investment in U.S. real estate in the short term. We expect Asian investors that do invest in the U.S. next year will favor offices in major cities, as well as logistics, multifamily, life sciences and data center properties. Sources of capital will be led by Korea, Singapore, Hong Kong and Japan. Buyers from China likely will remain cautious and could potentially be net sellers due to capital controls and trade tensions with the U.S. that will not fully dissipate.