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Data
on cross-border property transactions indicate greater unease
among investors prior to the referendum, which voters
unexpectedly approved on June 23, than had been captured in the
capital markets prior to the vote.
Cross-border capital flows into London real estate fell 44
percent in this year's first six months from the same period in
2015, according to data from brokerage Jones Lang LaSalle Inc.
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, one of Britain's largest foreign
investors, said on Wednesday it cut the value of its UK property
portfolio by 5 percent because of the vote.
"It would be fair to say that London bore the brunt of Brexit
fears," David Green-Morgan, 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 billion in cross-border investments in the
first six months of the year compared with the $6.9 billion that
London took in, data from JLL show. In the same year-ago period,
London garnered $12.4 billion while $11.3 billion flowed to New
York, according to JLL.
The 8.9 percent decline in cross-border investment New York
experienced is in-line with the roughly 10 percent decline major
cities experienced this year when compared to 2015, a stellar
year in property investment around the world.
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.
It is now obvious that people were becoming increasingly nervous
about the Brexit vote, Green-Morgan said.
Britain is viewed as more investor friendly than the United
States because of beneficial tax arrangements. However,
underlying property fundamentals - strong demand and not too
much supply - must be in place to attract capital, as now is the
case for the U.S. 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, said
Ken McCarthy, senior managing director, regional research
director for Tri-State New York at Cushman & Wakefield. Negative
interest rates across the euro zone also are driving investment
to the United States, he said.
"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.
(Reporting by Herbert Lash; Editing by Daniel Bases and
Marguerita Choy)
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