Is CRE in for an election-year slowdown?

Every four years, commercial real estate dealmakers warily eye the headlines for any hint of uncertainty that could cause deals to slow down.

But the dreaded election-year slowdown may be less about politics than people think. It is, as political strategist James Carville said, “about the economy, stupid.”

“I think investors are more focused on what’s happening with the economy and in particular with inflation,” Blackstone President Jon Gray said on the company’s July earnings call. 

“I think if we get good prints on inflation, that gives the Fed more air cover to cut rates [and] that will be more determinative of how markets perform,” he added.

Conventional wisdom says that investors are averse to uncertainty, and the lack of clarity around the election causes them to pump the brakes. But what’s driving the commercial sales market now is largely owners’ maturing mortgages, according to Ariel Property Advisors President Shimon Shkury. And there’s not much that can be done to stop that.

“Elections or not, these mortgages need to be repaid or worked out,” he said.

Even if there were some impact, there might not be a lot of room for things to get much slower.

Commercial property sales in New York City totaled $11.5 billion in the first half of the year, according to a report from Ariel Property. That was an increase of 23 percent over the back half of 2023, but it’s still pretty low by historical standards.

The first half’s total was the third-lowest in the past 10 years, behind the first halves of 2020 and 2021. One notable trendline is that the first six months of the year increased over the second half of last year. Normally, it’s the second half of the year that sees the higher sales volumes. But lower borrowing costs and optimism about interest rate cuts helped to pump up the first half of 2024.

On the office leasing side, there’s a similar story.

Manhattan saw 14.5 million square feet of leasing in the first half of the year, according to Colliers. That’s up 16 percent from the same period last year, but still on pace to be one-third below the pre-pandemic total from 2019.

Historically, though, elections have little impact on the year’s office-leasing total.

Since 1997, office leasing in election years has been off by just 0.9 percent compared to nonelection years, according to a report from JLL. 

What is different in an election year is that the normal seasonality of a lighter first half followed by a busier second half is reversed: Companies tend to front-load their decisions at the beginning of the year, and things cool down as November approaches.

JLL’s report concludes, “While some companies accelerate or delay decision making that falls near an election, overall impacts to office leasing activity are minimal.”