2017 commercial real estate outlook: The impact of U.S. tax reform

Despite strengthening market headwinds and troubling political uncertainties, the U.S. commercial real estate market is likely to remain the top destination for global real estate capital in 2017, and may even see a return to growth, according to a group of leading attorneys, investors, and operators.

Those experts agree that investors surveying the global real estate landscape will largely conclude that the U.S. continues to offer the strongest combination of principal protection and appreciation potential in the near future. No other market in the world offers a more appealing profile on key investment factors:

  • Relative political and economic stability
  • Strong market fundamentals
  • Access to capital
  • The potential for advantageous regulatory and tax reform

We chart here the impact of potential U.S. tax reforms on investment into U.S. real estate. In particular, we report on the role tax reform could play in shaping real estate financing structures and encouraging inflows of capital into U.S. real estate.

And while U.S. CRE prices have recently reached historically high levels, further growth could be fueled by the trillions of under-invested dollars held by institutional investors around the world. A significant portion of that capital is either likely or specifically allocated to end up in U.S. commercial properties.

“Compared to other destinations for global real estate capital, the U.S. continues to be very attractive,” says Mark Eagan, head of Hogan Lovells’ real estate practice. “And the factors driving
that are unlikely to change.”

And even as the U.S. experiences extraordinary political turmoil, international investors see a broader context. “Today we’re all super-concerned with global politics,” says William R. C.
Tresham, president of Montreal-based Ivanhoé Cambridge, a CDN$55 bn institutional real estate investor. “Business people ranking the places they want to invest still come back to the United
States as the number one destination.”

Still, investors and developers will encounter a number of unsettled questions in 2017, especially in the areas of taxation and regulation. In hopes of providing a guide to this nebulous terrain, below we
have summarized and analyzed the key trends driving the industry and the potential impact of U.S. tax reform.

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