The US will have a divided Congress for the next two years, with Republicans holding onto a narrow majority in the House of Representatives and Democrats securing a narrower control in the Senate.
Additionally, industry experts suggest that barring a serious crisis, a split Congress means there will be gridlock— which translates to very little getting done. What does that entail for investors in commercial real estate?
Experts add that while federal government action can be highly crucial in times of crisis, these big policy changes can restructure the economy. From the CRE perspective, we are seeing that now is one of those moments. In actuality, historically speaking, commercial real estate has benefited from an outlook with few changes on the horizon.
For instance, in 2017, when revisions to tax laws were being discussed, progress stagnated. Potential changes can divert investors and impede dealmaking; in addition, when Congress is divided, the returns on CRE tends to be larger.
From 1981 through 1986, when Congress was divided, yearly returns were 12.8%. Congress was run by a single party from 1987 to 2000, and turnout was only 6.8%. Returns increased to 8.2% from 2001 to 2002 when Congress was divided once more, while they decreased to 7.8% from 2003 to 2010 when one party controlled both houses. From 2015 to 2018, these trends persisted, reaching 14.2% returns from 2021 to 2022.
However, we know past success does not always guarantee future success. That being said, if you think that the next two years’ divided Congress will lead to inaction, then you very much have two years where the status quo is unlikely to change. Keeping this in mind can definitely help investors lock in a strategic commercial real estate plan tailored for them.
