Brexit: What Experts Predicted vs. What’s Actually Occurred So Far
The United Kingdom’s exit from the European Union begins March 29, triggering a two-year process that will impact global financial and real estate markets.
But how? When the Brexit referendum passed June 23, economists and commercial real estate experts made dozens of predictions about probable impact on the UK and U.S. economy, and the commercial real estate economy in particular.
Check out some of those predictions and whether they have been fulfilled, proven wrong or are yet to come true.
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When Britons voted to separate from the European Union, financial markets did not take too kindly to the news. Stock markets around the world slid as traders worried what the monumental move would mean for the global economy.
Stocks had plummeted and the British pound dropped to a 31-year low as the future looked bleak and the economic effect on a global scale remained uncertain. But the turmoil didn’t last long, particularly for the U.S.
“The markets did not think Brexit would happen so they were shocked and they overreacted. But, as time has gone by, the US stock market seems to have settled and moved on, while the rest of the world is still digesting it,” Rajeev Dhawan, Georgia State University/J. Mack Robinson College of Business director of economic forecasting, said four weeks after the Brexit vote.
TOO EARLY TO CALL: LIKELY UNTRUE
Prior to the vote taking place, many economists projected that a possible Brexit would result in investor capital leaving the nation and moving to the U.S. in search of safety. In a story shortly after the vote that discussed the possible CRE impacts of Brexit, Reis chief economist Victor Calanog told Bisnow that perception would play a big role during the times of uncertainty.
“Many markets detest uncertainty, and if U.S. commercial real estate is perceived to be a relatively safe haven compared to options in the UK, then that will benefit demand for properties in the U.S. in the near-term,” Calanog said.
Though foreign investors continue to favor the U.S. prime property market (Chinese investors poured nearly $20B into the U.S. real estate market last year) there is no evidence to support the fact that foreign money has shifted from London to the U.S., or New York in particular, as mentioned next.
TOO EARLY TO CALL
New York and London compete as the most desired property markets in the world, and it was predicted time and time again following the vote that New York would benefit from London’s fall.
However, that remains to be seen. It is still unknown whether an influx of capital has hit the Big Apple as a result of Brexit, though as the process gets underway and concerns regarding the UK's economy, trade and transportation increasingly weigh on companies' shoulders, any reinvestment from London to NYC could pick up speed.
Investment is definitely shifting in and from London. While New York still remains the No. 1 market for foreign capital in the world, Berlin seems to be benefiting the most from Brexit, jumping to the No. 2 place on AFIRE rankings — its highest ranking ever, and a sign that a good deal of investment normally allocated to London remained in Europe instead of crossing the pond.
TOO EARLY TO CALL: LIKELY TRUE
Though this too has yet to be established, an ample number of companies have openly expressed concerns about remaining in the UK. This has been such a concern that Prime Minister Theresa May put out a call to U.S. execs with offices and investments in the UK beseeching them not to withdraw investment from Britain.
In a KPMG survey, 76% of 100 CEOs polled with HQs in Britain said they are considering moving their headquarters out of the UK to avoid tumult should the nation lose easy access to the EU market.
There has also been talk of several London-based firms and banks relocating their HQs in the EU — such as Barclays, which announced it plans to make Dublin its HQ, adding around 150 staff in the city. Credit Suisse Group AG chose Dublin over London as its primary hub for servicing European hedge funds last year, and Standard Chartered Plc and Citigroup are considering following suit.
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According to a JLL report, this actually has occurred. For two consecutive years, London ranked No. 1 as the most dynamic city in the world in terms of tech innovation, growing populations and strong socioeconomic attributes — but that changed in 2016 following the Brexit vote.
London dropped to No. 6 and Bangalore, India, ranked No. 1 in its stead.
The annual report tracks the rapid economic expansion and growing commercial real estate markets of 134 cities throughout the world, taking into account gross domestic product, population, corporate HQs, commercial real estate fundamentals, property prices and more.
