How a Biden Administration Will Impact Canadian CRE

WRITTEN BY ZACH SCHENKER & GREG PEACOCK

Joe Biden has become the President-elect of the United States and will assume office on January 20th, 2021. At the moment, it remains unclear whether the Democratic Party will also have control of the U.S. Senate as there are two runoff elections taking place in Georgia. The results of these elections in early January will determine Biden’s ability to deliver on his platform of mitigating the spread of COVID-19, rebuilding the U.S. economy, expanding affordable healthcare, and confronting climate change. While Biden’s policy prescriptions offer a stark contrast to those of President Trump, a Republican held Senate will halt most of his legislative ambitions for the first two years of his Presidency. In this brief, we examine how Biden’s policy objectives are likely to impact Canadian commercial real estate (CRE).  

Trade

The Trump Presidency featured a hard-nosed trade policy resulting in the renegotiation of NAFTA, as well as subsequent steel and aluminum tariffs levied against Canadian businesses. While it is expected that perennial disputes such as softwood lumber will persist, the unexpected tariffs and duties which we’ve witnessed over the last four years will likely not be a part of Biden’s negotiating toolkit. The increased certainty offered by a Biden administration provides a better operating environment for manufacturers in Quebec and Ontario, which has a positive impact for industrial real estate demand in these regions. 

Immigration 

During his four years in office, Trump took several steps to reduce U.S. immigration through overhauling H1-B visas, imposing a travel ban, and decreasing the overall number of refugees accepted to the U.S. These policies helped boost Canadian immigration, especially when it comes to H1-B visas, as Canada became a more attractive destination for high skilled workers. The immigration story has provided a strong backbone for Canadian CRE, most notably in the multi-family sector. Biden has said he will reverse Trump's H1-B visa freeze, which will increase the competition for high skilled workers and create some softness in STEM dominant urban areas. Fortunately for Canadians, the U.S. immigration system is extremely archaic, and the absence of meaningful reform means that the influx of high-skilled labour and international students to Canada will continue. The only significant threat to Canadian immigration would be a scenario where the Democrats win the Senate and manage to pass immigration reform which significantly reduces barriers to study and work in the U.S.   

Climate     

Joe Biden has promised to cancel Trump's permit for the Keystone XL pipeline from Canada, eliminate new permits for drilling on federal land, rejoin the Paris Climate Accord, and invest heavily in clean energy. The cancellation of the Keystone XL would offer a significant blow to Canada’s energy sector and all CRE asset classes in the Calgary area. This is an item that Biden can tackle via executive action and we believe it is extremely likely given his opposition as Vice-President during the Obama Administration. With that being said, Biden has also promised to place a moratorium on new drilling permits on federal land. The reduced production of oil and gas in the U.S. that can be expected from such a decision may open up more investment into the Canadian energy sector. We believe that this potential tailwind coupled with the successful construction of Enbridge's Line 3 and the Trans Mountain expansion will help mitigate against the impact of the Keystone XL cancellation. 

Conclusion

Ultimately, we believe that the fundamentals for Canadian CRE remain strong under a Biden Administration. The increased stability offered by this administration will help capital allocators forecast risk when it comes to trade and other macro-economic developments. Additionally, the barriers toward passing meaningful immigration reform in the U.S. will continue to shield Canadian immigration. The impact of a climate-oriented administration remains less clear but presents some opportunity and risk for the Canadian energy sector and associated CRE. These dynamics ensure that there will continue to be strong capital flows toward Canadian CRE with investors seeking to capitalize on liquidity premiums in a low yield environment.