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Writer's pictureRealFacts Editorial Team

2024 Election Impact on CRE

Election Impact

The 2024 election is shaping up to be a pivotal moment for the commercial real estate (CRE) industry. With ballot measures aimed at housing affordability, taxation, rent control, and industrial development, the outcome of these votes will have long-term ramifications on how the industry operates and thrives. As voters decide on policies that could either encourage or stifle investment, developers, landlords, and tenants all face a potentially significant impact. Here’s why the election could reshape the landscape of commercial real estate for years to come.


Housing Affordability: A Key Issue


One of the biggest concerns in the election is housing affordability, particularly in states like California, Oregon, and Washington, which are struggling with high housing costs and shortages. Several ballot measures, such as California’s Proposition 33, aim to address the housing crisis by giving local governments more control over rent caps. While this measure seeks to help tenants, it could create a chilling effect on new developments. Rent control policies have long been controversial, with critics arguing that they reduce incentives for landlords to invest in property upgrades and deter developers from building new units.


For investors and landlords, Proposition 33 represents a double-edged sword. On one hand, the push for affordable housing is understandable given the widespread crisis, but on the other, restricting rental price growth could reduce the profitability of their investments. David Evans of Kidder Mathews points out that rent control measures might lead to a decline in property values, as landlords would be prevented from adjusting rent to meet market demand. His suggestion to remove rent caps for owners who renovate multifamily units reflects a middle-ground solution that could incentivize property improvements while still addressing affordability.


The Industrial Real Estate Impact


Another significant area of concern in the 2024 election is industrial real estate, particularly in California. The proposed AB 98 bill targets warehousing and logistics developments, imposing restrictions that would slow down or even halt new projects in certain areas. The bill aims to protect residential neighborhoods by enforcing strict buffer zones and limiting truck traffic, but it could severely hamper industrial growth in a state where demand for logistics space is high.


Eric Paulsen, regional president for Kidder Mathews, warns that AB 98 could have the most detrimental effect on industrial CRE, potentially driving up costs and delaying new projects. The logistics sector is critical for California’s economy, especially with the state being a major gateway for imports and exports. Limiting industrial development could lead to supply chain disruptions and ultimately hurt consumers, with higher prices for goods as a likely outcome. This is a classic example of well-intentioned legislation that, while aimed at protecting residential communities, could have unintended negative consequences for the broader economy.


Commercial Leasing and Tenant-Landlord Relationships


In addition to industrial and housing issues, there are also ballot measures that will directly impact commercial leasing agreements between landlords and tenants. One such measure, SB 1103, would require property owners to translate leases into a tenant’s primary language, which includes languages like Spanish, Chinese, and Tagalog. On the surface, this seems like a pro-tenant policy that would help reduce misunderstandings and disputes. However, it could increase operational costs for landlords, who might face legal battles over translation inaccuracies. The risk of lease cancellations due to disputes over translations could add another layer of complexity to already intricate leasing processes.


While the intention behind SB 1103 is noble—ensuring tenants fully understand their lease agreements—it could create logistical challenges for property owners. It may slow down the leasing process, make it harder to finalize deals, and raise legal risks. The additional cost burden of hiring translation services or dealing with translation-related legal disputes could discourage landlords from working with certain tenants, which would ultimately hurt the market.


Broader Taxation and Policy Concerns


Taxation is another major theme in the 2024 election that will influence commercial real estate. In California, the removal of the "Taxpayer Protection and Government Accountability Act" from the ballot is a setback for those advocating for lower property taxes. Proposition 13, which limits tax increases on real estate, has long been a pillar of California’s property market. However, recent pushes for increased state and local taxation have alarmed industry professionals who fear higher taxes could reduce profitability and stifle new investments.


Higher taxes could make it more difficult for commercial landlords to remain competitive, especially in high-cost markets like Los Angeles, San Francisco, and Silicon Valley. Suppose local governments begin to raise property taxes as a way to fund public services or balance budgets. In that case, the additional financial burdens will likely be passed on to tenants in the form of higher rents, which could lead to vacancies and a slowdown in the market. While tax increases may be well-intentioned, aiming to support community services, they risk pushing CRE investors to seek better opportunities in lower-tax states, a trend that has already begun to emerge.


The 2024 election will undoubtedly have a lasting impact on the commercial real estate industry. The stakes are high, from housing and warehousing to tenant relationships and taxation. Policies designed to address housing affordability, rent control, and industrial development may seem to benefit communities, but they come with risks that could disrupt the delicate balance of the CRE market. Developers, landlords, and investors must closely watch the election results, as the outcomes could determine how and where they invest in the years to come.


Ultimately, the election underscores the importance of thoughtful policymaking. While addressing housing affordability and environmental concerns is critical, policymakers must also consider the broader economic implications of their decisions. Failing to do so could lead to unintended consequences that hurt the very communities these measures are designed to protect.

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