Economy Watch: Why US CRE Might Benefit From Brexit

The impact of Brexit has been largely positive for the U.S. and will likely last for the long term.

brexit-1462470589PAaNow that it’s been a few months, is the impact of Brexit showing up in markets as far afield from the U.K. and the EU as the commercial real estate market in the United States? It’s a distinct possibility, according to the a recent report by Transwestern (the company’s “The Briefing,” August edition). The company noted that “the impact of Brexit will be long and protracted, which will likely result in increased volatility in the capital markets…the impact has been generally positive for the U.S., with the flight to safety.”

Among other save havens in this country is real estate: “Foreign capital has been pouring into stocks and bonds and also is expected to seek refuge in hard assets like commercial real estate,” the report asserted, adding that CRE has enjoyed positive fundamentals and ample liquidity on the equity side, while the debt side saw some contraction in the first half of 2016, primarily in CMBS and bank financing.

Moreover, the report posited, “the Dodd Frank risk retention rules that take effect in December are casting further doubt about the capital requirement and structure of CMBS. As a result, CMBS issuance lagged in the first half of 2016, with only $31 billion versus $54.5 billion for the same period a year ago.” That could pose refi difficulties for some 10-year loans that are maturing soon.

The report went on to predict low interest rates to continue for the foreseeable future, since the “Fed is apt to postpone further increases until political and financial market uncertainty subsides.” (Well, maybe. As central bankers gathered at Jackson Hole this week, some of them made noises about higher rates, such as Dallas Fed president Robert Kaplan.)