Brexit’s Impact on the Commercial Real Estate Market
Brexit has only begun to cause investors to feel unsettled. During such a period, it is common for investors to seek calmer shores for their money and a decent yield. Real estate investment trusts ran counter to the U.S. stock market recently. REITs are considered safe but those wanting higher returns had begun exploring other investment options last fall. However, anxious investors are now returning to the relatively safe cove of REITs and related real estate. Alexander Goldfarb, senior REIT analyst at Sandler O’Neill shared:
“Anything that is going to drive the 10 year lower is a positive for REITs. Three-and-a-half percent dividend yield with 6 to 7 percent earnings growth is pretty darned attractive in this environment.”
Brexit and events like it may be a boon for REITs and the real estate market. Political and economic changes cause the bulk of American investors to act conservatively and seek safe bets.
What to Know about Overseas REITs
Brexit may have little to no effect on REIT exposure abroad. Companies such as Prologis, a warehouse REIT, do have property overseas but can potentially benefit from the possibility of more imports into the U.S. As for Simon Property, owner of stakes in outlets in Asia and malls in Europe, they are unfazed by Brexit. Brexit will not stop people from shopping, and current research shows fundamentals in the majority of these sectors appear solid. European office and retail real estate have very little to be concerned about in terms of ripple effects from Brexit. Tom Mundy, director of Research, EMEA at JLL stated:
“Broadly speaking, European logistics is in a good spot. There is a lot of demand. Office or retail, there is a very strong fundamental underlying dynamic. They are not negatively impacted by the U.K. Vacancy rates are significantly below long-term averages.”
REIT stocks fell in early trading on June 27th but were significantly less affected than the S&P and Nasdaq. In comparison with broader markets, REITs continue to outperform.
How Will Brexit Impact U.K. Real Estate?
The Wall Street Journal reports that investors and developers are reassessing current projects as well as publicly traded real-estate companies. Some listed companies have lost as much as tens of billions of dollars amidst investor fears. London may take a significant hit, as there is general angst that they will lose offices, jobs and residential landlords to other international cities, such as Paris, Dubai, Frankfurt and Singapore. Thus far, there has been a significant short-term impact on sales deals and leasing as investors and decision makers are wary of the Brexit fallout. London may see as much as a 15 to 20 percent loss in office values over the coming 18 months and could potentially lose up to 100,000 jobs.
Changes to the real estate market can help savvy American investors make out-sized profits. As many turn to the “sure thing” in REIT investments, others thrive on snapping up relatively cheap properties and seizing investment opportunities. Chief executive of Prologis Inc., Hamid Moghadam, said, “Turmoil is an opportunity.”
What about U.S. Real Estate?
Foreign investment into the real estate market at home continues to bolster real estate values. Chinese and Middle Eastern investors are expected to continue, and in many cases accelerate, the pace of investment into U.S. markets. Major cities can benefit from additional foreign capital in the aftermath of Brexit. Sam Chandan, founder and chief economist of Chandan Economics, said:
“The continued flight to the safe harbor of American properties in gateway markets like New York and San Francisco reflects persistent economic and political instability in other parts of the world. The U.K.’s decision to exit the European Union underscores the U.S. investment thesis and could trigger a new wave of foreign capital inflows to high-quality, well-located assets.”
Such flights to safety create competition for good real estate investments in the U.S. and drive values higher, which is great news for investors who get into commercial real estate early. Online listing services like fullcapitalstack.com are making it easier to find, analyze and invest in good commercial real estate deals around the U.S. There has never been a better time our opportunity to investment in your own diverse portfolio of commercial real estate than there is right now.