Brexit Could Help US Real Estate

The United Kingdom’s vote last week to leave the European Union is likely to have a short-term positive effect on commercial real estate in the United States, especially in large gateway cities and in the office market, according to market observers.

“We’re probably going to see more foreign capital push into the safe haven that is the United States,” said Suzanne Mulvee, director of research at CoStar, a commercial real estate analytics company.

The greatest effect will probably be in the office markets of U.S. cities that are points of entry for international travelers.

“The high-water mark is generally New York City, as you would expect,” Mulvee said. “That’s a gateway market where we think foreign capital — direct investment — was as much as 25 percent of all the volume traded in 2015.” Nationally, CoStar estimates that 11 percent of direct investment in U.S. commercial real estate came from foreign buyers in 2015.

Other cities that could see a boost in foreign investment as a result of the Brexit vote are Washington, Boston, Los Angeles and San Francisco, Mulvee said. International buyers remain interested in those markets, even though they are relatively expensive and an influx of new investment is likely to push prices even higher.

“Foreign capital itself is typically the low-yield buyer, because they’re buying for stability and long-term holds, and that tends to influence the price in these markets,” Mulvee said.

Economic factors that have threatened to slow foreign investment in U.S. commercial real estate remain, however, including the strong dollar and volatile energy prices, but those factors might be tempered by investors’ eagerness, worldwide, to find a safe harbor after the Brexit vote, Mulvee said.

“There is the possibility that some of the European countries will struggle because of the exchange rates, but we think other capital takes its place,” she said.

The longer-term effects of the vote and Britain’s actual withdrawal from the European Union (EU) are less clear, according to a group of academics that make up to Distinguished Fellows panel of the NAIOP, the commercial real estate development association.

“Brexit is one more in a series of shocks to the global economy that will have uneven implications for the U.S.,” said Christian Redfearn, professor of real estate at the University of Southern California. “An exit from the EU could signal the beginning of the end of the EU experiment and a lot of uncertainty about one of the major drivers for the world economy.”

Another panel member, Gerard Mildner, director of the Center for Real Estate at Portland State University, said Brexit will probably have little immediate impact on the U.S. economy or commercial real estate markets, but could be part of a larger shift in the nature of the global economy.

“The risk is that other countries will copy Britain and impose trade barriers,” Mildner said. “The most exposed U.S. sectors will be export businesses (e.g., aerospace, agriculture, technology), port-related industrial property and the financial industry.”

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