The UK Vote was the Best Thing to Happen to Real Estate
Weeks after the news of the exit, markets are reaching new highs. In the wake of the UK Brexit news, rates for 30-year U.S. mortgages slipped to 3.41%, flirting with a record-low 3.31% rate not seen since November 2012. The reason for this is simple – global investors drive mortgage interest rates through the mortgage-backed securities market. Since these are considered safe and stable, they attract more buyers during times of chaos.
Mortgage rates are also influenced by the yield on the 10-year Treasury notes, which dove to 1.56% after the UK exit vote. Investors also buy these notes to escape incessant global volatility, and have the power to also drive down mortgage rates in the U.S., as we are now seeing.
Additionally, the UK news has put any chance of a Federal Reserve interest rate hike on pause, relieving a great deal of pressure.
It’s also a boon for commercial real estate.
After a great deal of negativity and fear that CRE values would decelerate, that’s not likely to happen. In fact, as we noted in late June 2016:
“The U.S. commercial real estate market could see a structural shift in capital from the UK and from other countries that may pull capital from UK properties, in search of safer opportunities and higher-yield in a low interest rate environment.
“We’re currently seeing a steady flow of investors – who were comfortable with the UK property market – moving into U.S. markets. Others analysts are seeing many Chinese investors shifting their business offices from London to hotspots like New York City as a result of recent magnified UK volatility.”
Nowadays, according to the CCIM Institute, a network of commercial real estate professionals is seeing an increase in global activity in CRE investments.
"The trend of Foreign Direct Investment (FDI) net inflows of capital toward the U.S. commercial real estate market will remain strong, and the Brexit initial ripple effect for demand in the U.S. will initially increase as investors seek security," said Kamil Homsi, CCIM, president of Global Realty Capital LLC in New York City.
The group also reported that, “Several U.K. investors tell me that they see U.S. commercial real estate as a safe haven. Given low interest rates on commercial real estate loans, and commercial rental rates in Central Texas that continue to rise, there will be even more of an uptick in European and global investor activity.
“Historically, foreign investors rarely take their capital out of the U.S. commercial real estate market unless there is a major drop in valuation within European gateway cities. This is unlikely due to limited available inventory, time needed, and European Union exit tax complexities. Investments in the U.S. will only get stronger as a result of these factors.”
Perhaps the Federal Reserve, Morgan Stanley, the Urban Land Institute, PIMCO and billionaire Sam Zell will now reverse their negative comments about the industry, given the new, and potentially heavy demand from foreign investors, as we spoke about in my latest blog post on The Huffington Post.