Earlier this week, the world was stunned by the British vote to leave the European Union within 2 years. The most likely impact on corporate real estate markets and operations will be immediate. While equity markets have recovered somewhat from the lows, it’s unlikely that the stock market will return to its historical highs of last week any time soon.
The first and most immediate effect will be substantial downturn in the UK property markets. In a Wall Street Journal article on Tuesday, the article reported a job loss in the UK of nearly 100,000 workers. Publically traded real estate companies saw sharp drops in share price. UK real estate investment trusts also saw declines in values. There’s wide spread speculation that investment in UK property will stall, although the Chinese have indicated a desire to increase UK investment opportunistically.
It’s likely that international property investment will increase in the US as an alternative to investment in the UK. This may result in increased demand and pricing in such US markets as New York, Chicago, San Francisco. Similarly analysts predict increased demand in other global markets such as Frankfurt, Paris, Dubai and Singapore.
In the short term at least investors will take a “wait and see” approach before making any significant investments. However, CRE managers may want to accelerate leasing deals to take advantage of possible lower rental rates, and more generous tenant allowances in UK markets. Analysts predict a melt down for UK based banks. This will certainly affect banking stocks and may result in substantial declines in lending rates. This is good news for CRE managers who may want to take advantage of lower rates in UK property deals. It’s uncertain how Brexit will affect European property markets, although analysts predict a decline in values with UK properties leading the list.
The Journal article saw major declines in several UK REITs. Shares of the two biggest U.K. real-estate investment trusts, Land Securities PLC and British Land PLC, tumbled 17% and 24%, respectively, since markets closed last Thursday, the day before referendum results were announced.
Conclusion: The Brexit vote creates enormous uncertainty and thus, CRE managers will most likely revisit leasing and investment plans in light of this sudden change in both the UK and European markets. Uncertainty increases risk and risk is a bad thing in the real estate industry.