My phone was ringing all day yesterday with clients, colleagues and journalists asking about the potential impact of a Donald Trump presidency on the office market. The answer is actually somewhat surprising. One would ordinarily think that the election of an office mogul would be good for the business. However, if implemented the signature Trump policies of tariffs, tax cuts, and mass deportation could pose a challenge to our industry. On the other hand, this could be offset by thoughtful back-to-the office policies. While Mr. Trump is known for other issues that are more controversial, he would do considerable good for the economy by looking at creative policies that would encourage a return to the office.

That is because a second Trump presidency could paradoxically be quite inflationary as demonstrated by the fall in prices and rise in yields in the Treasury market. At Wednesday’s close, the 10-year Treasury was at 4.43%, representing a 14-basis point increase for the day. In fact, the 10-year rose as high as 4.48%, which was its highest level in over four months. Of course, real estate lending and capitalization rates are very closely linked to the 10-year Treasury yield, so we need to be aware of this concern which could create additional problems for landlords with expiring mortgage debt. While most people were watching the rise in the equity markets yesterday, I was closely following the rise in Treasury yields (and corresponding fall in prices) which should not be a surprise. The reaction of the bond market (and I was a former bond trader) was based upon the expectation that if new tariffs are implemented, they will lead to higher consumer prices.

Further, a potential reduction in corporate tax rates would likely mean bigger deficits. Unsurprisingly, investors are concerned that the potential for increased inflation and greater deficits will ultimately result in an increase in long-term interest rates. This problem could potentially be exacerbated if there are mass deportations which could cause a labor shortage in an economy at full employment, thus resulting in upward pressure on wages.

But the bottom line is that until someone fixes the 52% employee attendance rate, the office sector will remain in the doldrums. New policies will be needed. Moreover, even if there is growth in employment, the old-time connection between headcount growth and additional office space has been broken.

I have long advocated the implementation of tax credits for both employees to incentivize them to come to the office as well as employers to encourage them to bring employees back. These steps should pay for themselves by increased tax revenues for cities that will benefit from increased spending by employees in downtown business districts and on public transportation, which will in turn generate higher tax revenues in a virtuous circle.

That’s not all that is needed. For example, the city of Philadelphia has directed its government employees to return to the office in an attempt to achieve the goals described above. We might reasonably anticipate that the President-elect may direct Federal employees to do the same.

Closer to home, the New York Times is reporting that a second Trump administration would have significant ramifications for New York City. First, there are a couple of campaign promises that were made that would have an impact. Trump said in May that he would end congestion pricing (with which we largely agree). Second, as a campaign promise Trump said that he would restore the state and local tax deduction (SALT) his first administration cut to $10,000, which would also be good for New Yorkers. On the other hand, he could be less supportive of funding for transit projects such as the Second Avenue subway, although Crain’s is reporting that he may not be able to stop additional funding for the all-important Gateway rail tunnel under the Hudson River which is vital to the future viability of the regional economy.

As for private industry, companies such as Amazon and Dell are reintroducing five day a week office policies. We have written extensively on this issue and advocate flexible approaches based upon whatever works best for a particular employer, and their staff. That said, Trump just happens to have a particular interest in the office industry. He might do well to consider creative ways to stimulate it, as that business is an important engine of urban America. Further, the head of the President-elect’s transition team is Howard Lutnick, chairman of Newmark. While Mr. Trump is known for other issues that are more controversial, some enlightened self-interest could be quite beneficial for New York and the national economy.

Thank you,

Ruth Colp-Haber