How Deregulation, Tariffs, & Immigration Impact Commercial Real Estate Under Trump

With Donald Trump securing a second term in office, the commercial real estate (CRE) community is bracing for policy shifts that could have profound implications.

Investors have debated the impact of deregulation, tariffs, and immigration on the industry, each of which could influence market dynamics in both the short and long term.

In this blog post, we’ll break down these key factors and analyze how each may affect CRE under Trump’s administration.

1. Deregulation: A Catalyst for Growth?

Historically, Trump has been known for favoring deregulation, which has had a track record of boosting property values by reducing barriers for businesses.

During his first term, Trump introduced policies like the 2017 Tax Cuts and Jobs Act, which established Opportunity Zones to stimulate investment in underdeveloped areas through tax incentives. CRE experts speculate that Trump’s second term might bring similar initiatives, especially around streamlining the permitting process and easing environmental regulations.

Such changes could benefit developers by reducing the cost and timeline of new projects, especially those involving affordable housing or revitalization in underserved areas​.

However, deregulation’s effects aren’t all positive.

While loosening restrictions can spur development, there are concerns about consumer protection and the long-term sustainability of certain deregulated practices. For example, commercial real estate professionals worry that deregulation without strategic planning could favor short-term gains over balanced, long-term growth.

As one Tyler Cauble, President of The Cauble Group, noted, “There is a reason regulation exists … It’s typically to protect the consumer.” Ideally, a balance could be struck that reduces red tape without compromising essential safeguards​.

2. Tariffs: Inflationary Pressure and Supply Chain Disruptions

Tariffs are a significant point of contention, especially considering Trump's inclination toward protectionist trade policies.

Proposals for new or increased tariffs on imports from China and Mexico could result in heightened costs for construction materials, affecting everything from affordable housing to retail and office developments.

For CRE, this creates a double-edged sword.

Existing property owners might see rising property values due to construction cost increases limiting new developments. However, developers could face considerable financial strain, as elevated material costs cut into profit margins and slow down project completion.

Additionally, tariffs could fuel inflation, posing broader economic challenges that might impact CRE by driving up rents and lowering consumer spending.

In the face of higher inflation, the Federal Reserve might hesitate to cut interest rates, leading to higher borrowing costs, a challenging prospect for developers reliant on favorable financing conditions.

Furthermore, supply chain disruptions could force developers to seek alternative sources for materials, which could either delay projects or compromise quality​.

3. Immigration: Workforce Challenges in Construction

Immigration is another crucial aspect of Trump’s policy, and proposed restrictions could significantly impact the CRE sector, particularly construction.

An estimated 30% of the construction workforce consists of immigrants, meaning strict immigration policies could exacerbate labor shortages, driving up labor costs and delaying projects.

For CRE, this could mean increased expenses in development and possibly higher rents as developers pass costs onto tenants.

In a market already grappling with inflation and labor constraints, tougher immigration policies could push construction costs higher, particularly for large-scale developments.

That said, some investors argue that a more efficient immigration process, focused on streamlining the process for skilled workers, could mitigate the impact. Implementing such policies would support a steady labor force and prevent projects from stalling due to labor scarcity​.

4. What Lies Ahead: The CRE Market Outlook

While Trump’s policies may present challenges, CRE investors are optimistic about the benefits of a deregulated environment and tax-friendly incentives.

Hard assets like commercial real estate are often seen as a hedge against inflation, and the potential for inflationary growth could further support this perspective.

Investors who prioritize long-term, strategic investments may find that CRE remains a viable option, particularly if they can capitalize on incentives and locate properties below replacement cost.

Given the complexities and uncertainties, many investors advocate for a cautious approach, suggesting that it’s prudent to stay informed and flexible. As Matt Anderson of Anderson Legal put it, “It’s easy to jump to conclusions, but every election cycle brings new unknowns. The best strategy is to monitor policy changes closely and adjust investment plans accordingly.”

Donald Trump's presidency could bring a mix of opportunities and challenges for commercial real estate.

With deregulation potentially boosting investor confidence, tariffs impacting construction costs, and immigration policies tightening labor markets, the CRE sector will likely experience fluctuations that demand both caution and adaptability.

Investors should remain vigilant about changes in policy, stay engaged with the market, and be ready to seize opportunities as they arise.