Commercial real estate is generally regarded as one of the most secure and stable investments you can make in the United States — but how will the “Brexit” affect development companies abroad?
The Wall Street Journal reports that it’s not looking good. After the UK voted to leave the European Union in a historic referendum just two weeks ago, many real estate investing companies — and foreign investors in particular — are pulling out for fear of a deteriorating pound.
“The real-estate fears and the pound’s decline are intertwined,” explains the Wall Street Journal. “Foreign investors have been huge buyers of U.K. property, and they have started to cash out. The Bank of England said Tuesday in its financial-stability report that foreign flows into U.K. commercial real-estate sank nearly 50% in the first quarter. Late Tuesday in London, the pound traded near $1.30, down 2%.”
Usually, working with commercial real estate investment groups is considered secure because the purchased property and land allows for a hold on value, and over time, that property can appreciate in value. With the rapidly declining pound, however, those prospects seem bleak.
And this is only in the initial wake of the Brexit. The official departure from the European Union won’t happen for another two years — and what then? Unless real estate developers are willing to hold on to their assets for a very long time, it’s unlikely that the returns are going to pay off any time soon.
“Real estate is an especially vulnerable asset to mass flight because it is difficult to sell quickly,” WSJ writes, “while ‘open-ended’ funds typically allow their investors to cash out any day they like.” Indeed, some investors are pulling out so fast that several major British asset managers have had to block any further sales.
Is this a temporary panic or a harbinger of the years to come for Britain in a post-Brexit society? And how will these effects translate across the pond as foreign investors look for more stable opportunities? Could the U.S. benefit from Britain’s rebellion? It may be too soon to forecast into the future — in the end, perhaps only time will tell.
