As sentiment turns negative towards London due to the surprising UK vote to leave the European Union, New York has become the number one location for investors to seek out commercial real estate.
Just before the Brexit referendum there was an indication that investors were starting to feel nervy on London, as fluctuating international property transactions pointed to fears the English capital might lose its appeal as a world economic centre if the British public decided to leave the E.U.
According to investment company Jones Lang LaSalle Inc., compared to the first half of 2015, there was nearly a 50 percent drop in cross-border property transactions. Foreign investors simply didn’t want to risk purchasing property that might be devalued due to a political event beyond their control.
Indeed, one of the UK’s largest foreign investors, Norway's sovereign wealth fund, said it needed to wipe 10 percent off its British portfolio due to the Brexit.
“There’s no escaping the fact that London has got the sharp end of the Brexit stick,” Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management in a note to clients. “The attraction of London has always been as a world economic hub with a wide base of financial service employment opportunities. Obviously there is concern that London’s profile will be eroded.”
Data from Mr. Lane’s firm, Shizuoka, shows New York nearly doubled London’s total for cross-border real estate investments between January and June this year at $10 billion. In the same period last year London raked in $12 billion compared to this year’s $6 billion.
The UK has traditionally been viewed as friendlier than the U.S. towards real estate investors due to beneficial property tax structures, so the trend towards America will weaken one of Britain’s strongest investment areas.
“Many of America’s ‘gateway cities’ like Boston, Chicago, L.A. and of course New York are going to see a surge in capital investment towards property,” says Cushman & Wakefield senior VP Ken McCarthy. “Investors are looking to redeploy their capital away from the UK and, in a broader sense, Europe. It’s not just the shock of the Brexit but negative interest rates are a factor too.”
A World Bank report is expected in the coming months which will present data on the effects of the UK exit from the European Union. It will be released on the same day as a central bankers meeting in the U.S.
