The U.S. commercial real estate industry has been enjoying a considerably positive run since the end of the Great Recession in 2009, according to the National Bureau of Economic Research. However, when the United Kingdom announced their decision to leave the European Union – playfully referred to as “Brexit” for British exit – it is unclear what the result will be on the U.S. economy and commercial real estate.
Analysts warn that London office values could plummet as much as 20% within the first three years of Brexit’s aftermath, which contributes to the growing fear that failure to control investor panic could throw the UK into a recession. In an effort to keep businesses in the UK, the nation’s Treasury chief said he plans to cut the corporate tax from 20% to 15%.
Immediately following the decision, stock markets around the world went sliding and with them came a strong concern of how it would impact the global economy. However, the initial shock of the Brexit vote is subsiding in the U.S. as stock futures slowly climb. The question still remains as to how Britain’s decision to leave the EU will impact the U.S. commercial real estate industry. The initial impact could have a positive short-term boost for U.S. real estate as capital gets redirected to the U.S. as a safe harbor due to London’s finance sector fleeing to mainland Europe, or negative with a European recession that could contribute to slow growth and continued low interest rates in the U.S.
The short-term uncertainty and market turmoil can be described as a “first order” impact – an overreaction that tells little about how markets will settle out in the long run – as coined by Georgia State University economist Rajeev Dhawan. A transition of capital is already underway, with investors looking to the U.S. instead of the former USSR, including many Middle Eastern investors who were previously comfortable with the British market.
Britain’s exit process will begin in October with negotiations and take place over the next couple of years, which may perpetuate the market uncertainty, and slow capital flow and cross-border deals – where trade with the UK makes up around 3% of overall U.S. trading. It is yet to be seen how U.S. commercial real estate will effectively respond to the dramatic shift.
Meissner Jacquét Commercial Real Estate Services, headquartered in San Diego, CA, aligns with their clients in strategic business decisions concerning their assets by understanding and achieving ownership goals. Meissner Jacquét’s oversight allows their clients to be confident that their assets are in capable hands. Contact Brent Williams or Allison MacDonald to learn how Meissner Jacquét’s platform can leverage your resources in a constantly fluctuating real estate market.