Business Essentials for Professionals


Brexit Fears Results in London Loosing out Global Property Crown to New York

Brexit Fears Results in London Loosing out Global Property Crown to New York
Pushed by fears that the vote to leave the European Union would diminish the British capital's appeal as a global financial center, New York has knocked off London as the world's premier city for foreign investment in commercial real estate.
Voters in the U.K. had unexpectedly approved Brexit on June 23 and a greater unease among investors prior to the referendum, compared to what had been captured in the capital markets prior to the vote, is indicated by data on cross-border property transactions.

According to data from brokerage Jones Lang LaSalle Inc, compared to the same period in 2015, in this year's first six months, cross-border capital flows into London real estate fell 44 percent.
Property investors feared that the value of their investments, the majority of which are office buildings, would be reduced as Britain's exit from the EU would erode London's role as a premier financial center.
It cut the value of its UK property portfolio by 5 percent because of the vote, Norway's sovereign wealth fund, one of Britain's largest foreign investors, said on Wednesday.
"It would be fair to say that London bore the brunt of Brexit fears. The big fear is that London will lose a lot of the financial service jobs that has made it such a global financial center," David Green-Morgan, director of global capital markets research for JLL in Chicago, said in an interview.
Data from JLL show that compared with the $6.9 billion that London took in, New York gained $10.3 billion in cross-border investments in the first six months of the year. According to JLL, London garnered $12.4 billion while $11.3 billion flowed to New York in the same year-ago period.
When compared to 2015, a stellar year in property investment around the world, this year major cities experienced a roughly 10 percent decline in cross-border investment in real estate and the 8.9 percent decline in investment that New York experienced is in-line with the 10 percent decline.
The drop-off in investment flows to Britain, the largest decline since the financial crisis, is only partially explained by the concerns that the UK market was coming toward the end of the cycle amid signs pricing was reaching unsustainable levels. Green-Morgan said that people were becoming increasingly nervous about the Brexit vote was now becoming obvious.
Due to beneficial tax arrangements, Britain is viewed as more investor friendly than the United States. However, as now is the case for the U.S. office and multifamily real estate sectors, underlying property fundamentals - strong demand and not too much supply - must be in place to attract capital.
Ken McCarthy, senior managing director, regional research director for Tri-State New York at Cushman & Wakefield said that investors have become less cautious about Europe and more cautious about Britain due to the uncertainties created by Brexit. He said that investments were also being driven to the United States due to the negative interest rates across the euro zone.
"You're going to see people look to redeploy their capital elsewhere and the big one will be the U.S.. Most likely given that it is overseas capital, it will focus on gateway cities," McCarthy said, citing New York, Boston, Washington, Los Angeles and San Francisco.

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc