NYC, Commercial Real Estate Capital of the World
New York has knocked off London as the world’s premier city for FDI (foreign investment) in commercial real estate due to fears the vote to leave the EU aka Brexit, will diminish the British capital’s appeal as a global financial center.
Data on cross-border property transactions indicate greater unease among investors prior to the referendum, which voters approved on 23 June, than had been captured in the capital markets prior to the vote.
Cross-border capital flows into London real estate fell 44% in 1-H of this year from the same frame in Y 2015, according to data from brokerage Jones Lang LaSalle Inc (NYSE:JLL).
Property investors feared Britain’s exit from the EU would erode London’s role as a premier financial center and reduce the value of their investments, the majority of which are office buildings.
Norway’s sovereign wealth fund, 1 of Britain’s largest foreign investors, said last Wednesday it cut the value of its UK property portfolio by 5% because of the vote.
“It would be fair to say that London bore the brunt of Brexit fears,” the director of global capital markets research for JLL in Chicago, said in an interview. “The big fear is that London will lose a lot of the financial service jobs that has made it such a global financial center.”
New York gained $10.3-B in cross-border investments in 1-H of this year compared with the $6.9-B that London took in, data from JLL show. In the same year-ago frame, London garnered $12.4-B while $11.3-B flowed to New York, according to JLL.
Concerns the UK market was coming toward the end of the cycle amid signs pricing was reaching unsustainable levels only partially explains the drop-off in investment flows to Britain, the largest decline since the financial crisis of Ys 2007-2008.
Britain is viewed as more investor friendly than the United States because of beneficial tax arrangements. The underlying property fundamentals, strong demand and not too much supply, must be in place to attract capital, as now is the case for the US office and multifamily real estate sectors.
The uncertainties created by Brexit has made investors more cautious about Britain and to a lesser extent about Europe. Negative interest rates across the Eurozone also are driving investment to the United States.
Big real estate investors are redeploying their capital and the Key destination is the US, given that overseas capital focuses on gateway cities like New York, Boston, Washington, Los Angeles and San Francisco.
Have a terrific weekend.