U.K. Commercial Real Estate Collapse Could Be a Boon for the U.S.
Nearly two weeks after the U.K. voted to leave the European Union, the Brexit's effects on domestic and foreign markets are still being monitored.
However, one area that has been clearly battered is the U.K. commercial real estate sector. Six U.K. property funds have frozen trading since the Brexit following massive redemptions, locking up more than half the nation's 25 billion pound property sector.
For U.S. investors, however, the news may not be so grim.
The U.K.'s property struggle is predicted to turn into a boon across the pond, as investors switch over to a more stable market to protect their money. Property investment predictions in the U.S. look positive and may be a particularly secure place in which to invest for the near future.
Stock prices of U.S. real estate investment trusts shot up following the Brexit, even as REIT prices plummeted in the U.K. In addition, U.S. economic stability is more certain than in the U.K., which means that investors across the globe will about transferring assets for long-term safety.
"Investors for years have been seeking safe haven in the London property market," said LPL Financial Chief Economic Strategist John Cannaly.
"We actually have positive yields," he said. "In other words, if you give the U.S. government your money, they actually give you something back, whereas in Switzerland or Japan or Germany, the opposite happens."
Some real estate analysts suggest that U.K. property values will drop as much as 10% over the coming months, while property prices will likely rise in the U.S. as demand increases.
Experts suggest that businesses will pull jobs and offices out of the country once the Brexit goes through, dropping demand for office space sharply, with all signs pointing to those companies transferring jobs and offices to the U.S.
"One thing that Europe has shown is that it doesn't move quickly when it comes to politics, so if you were sitting on a pound over the dollar, this is a good time to move that money to the United States," said Louis Archambault, U.S. real estate lawyer and partner at Arnstein P. Archambault.
"The U.S. is one of the more stable markets right now in the world," he said. "I would be looking very seriously to converting that money and investing it in United States."
Leonard Steinberg, president of U.S. residential real estate brokerage firm Compass, said that big U.S. cities will benefit from the Brexit.
"Dollars have to flow somewhere," he said. "All currencies have to flow somewhere to be invested, why not in the safest economy and environment, and that could be the United States?"
Middle Eastern investors that previously favored London are expected to look at New York as an alternative location as they search for safer investments for renting property.
A few experts have suggested that the impact on the U.S. may be only minimal, but compared with the U.K.'s uncertain economic situation that may be preferable.
The U.S. is already seen as a safe investment for foreign investors, which will continue to be a selling point, according to National Real Estate Investor.
Investors looking for a safe place to put their money can continue to look to U.S. real estate property as a safe bet. With demand for office space predicted to rise, particularly in larger cities such as New York, the U.S. property sector can thank U.K. voters for the leg-up.
This article is commentary by an independent contributor.