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Brexit could bring more commercial real estate capital to U.S.

7/5/2016 | Real Estate Blog

Pennsylvania investors are likely wondering how the U.K.’s exit from the European Union will impact real estate markets in the U.S. and abroad. Some analysts believe that there will be uncertainty in the short term and that the move could potentially bring more foreign real estate capital to American shores.

According to an analyst from real estate services firm Savills, the Brexit could lower investor demand in the U.K. and impact real estate pricing, softening yields over the rest of 2016 and into 2017. In the second half of 2017, strengthening investor demand could limit the rise in yields. However, foreign investors might shift capital away from the U.K. and into the U.S. For example, investors from the Middle East have a history of favoring London, but they could find New York City more profitable in the aftermath of the U.K.’s exit.

Many foreign investors already consider the U.S. a safe haven for their capital. Real Capital Analytics reports the American multifamily sector raked in $16.3 billion in foreign investments in 2015, including $2 billion from the U.K. That trend could intensify if uncertainty pervades in the U.K. real estate market. However, other analysts note that the U.K. is responsible for approximately 20 percent of all cumulative foreign investment in the U.S., and the Brexit could cause a rise in the cost of capital and a decrease in foreign direct investments. The Federal Reserve also cited the U.K.’s possible exit from the E.U. as a deciding factor in the timing of the next interest rate hike.

The Brexit is an unprecedented event with global commercial real estate market repercussions. It may be prudent to consult with a real estate attorney before buying or selling property in times of economic uncertainty.

Source: National Real Estate Investor, “Brexit Could Bring More CRE Investors to U.S. Shores,” Diana Bell, June 24, 2016