While the first period of initial market volatility following the U.K.’s Brexit referendum has passed, how the real estate markets – both globally and in Boston – deal with the change long-term remains unclear.
In the short-term, the uncertainty surrounding the U.K. market and the strength of the pound will likely lead to an increase in money coming to the U.S., as investors look for safer locations.
Several asset management firms have suspended trading in their U.K. property funds, with too many investors looking to withdraw shares.
That shift of funding away from London will likely continue to be focused on gateway cities in the U.S., which have been seen as safe havens following other volatile events on the world stage. Boston in particular stands out as a stable market, says Peter Joseph, Vice Chairman of Cushman & Wakefield’s Capital Markets team.
“Commercial real estate prices in London had gone up tremendously,” said Joseph. “For now, the uncertainty surrounding everything may simply take London off many major players’ lists.”
However, moving beyond the short-term is much more complicated.
A number of questions about the U.K.’s move to leave the EU still remain unanswered, which makes evaluating the long-term impact of the Brexit decision impossible to judge with any certainty.
- When will the new U.K. Prime Minister actually trigger the official process of leaving the EU?
- How will those negotiations (which could take up to 2 years) affect British access to the EU’s markets?
- Will London firms look to move operations to Paris or other EU cities?
- Will Scotland (and perhaps Northern Ireland) hold referendums on independence from the U.K.?
- Will other EU members look to hold their own referendums?
- Could the U.K. choose – in the end – never to leave the EU at all?
- and the list goes on
The impact of these factors means that there are too many unknowns to definitively say what impact the Brexit vote will have on the market as a whole, says Rob Skinner, Senior Managing Director of Valuation and Advisory at Cushman & Wakefield.
“It’s really too early to tell what will happen,” said Skinner. “There are too many questions.”
For now, the uncertainty in the global economy has driven the Federal Reserve to delay increasing rates once again, with increased Treasury purchases driving borrowing costs down even further.
But beyond that, answering the question of “What will the Brexit mean for real estate?” will be something answered in small pieces during the coming months and years.