How Brexit could be a boon for America's commercial real estate market
Some investors are worried that Brexit will prompt a global selloff in real estate, but it may not be all bad news for some US markets.
British property funds faced enormous pressure from those seeking redemptions after a majority of UK voters decided to walk from the European Union. Earlier in the month, two large British institutions — Standard Life (SLI.L) and Aviva (AV) — halted redemptions on their commercial property funds to stem large outflows.
The fallout from Brexit will be somewhat complicated for US real estate markets, according to Jim Costello, senior vice president at data firm Real Capital Analytics. However, he expects the net result to be positive.
“London was a huge place for safe harbor real estate investment. They’re just not going to be doing that as much as all the uncertainty is sorted out,” he said. “So we may see a lot of capital moving to the United States looking for that safe harbor.”
While the previous financial crisis was ignited with a selloff in the real estate market, Costello doesn’t expect history to repeat in this instance.
“It’s a little bit different this time—and you know you’ve got to be careful when someone says ‘this time, it’s different,’” he said. “It’s not a broad confidence issue. We don’t see that same kind of problem in the United States.”
And although commercial real estate volumes are down, prices haven’t much moved, added Costello. He is not worried that the reduced number of transactions compared to last year is a sign of potential trouble in the market.
Last year’s transactions were dominated by big portfolio deals spurred by lower interest rates, contends Costello. This year is seeing more one-off deals, where buyers focus on a single property rather than a group of them. “That activity is down somewhat as well, but to me it says it’s on more stable ground,” he said.
The next 12 months should appear similar to today, forecasts Costello. “You’re going to continue to see the echo effects of the previous year continue to impact the deal activity,” he predicted. “Flat or even just a slight increase — it’s safe and steady and boring — but I think that’s where we’re headed.”