The United Kingdom’s exit from the European Union could be a boon for Boston Metro commercial real estate, according to the Boston Globe, the Boston Business Journal and National Real Estate Investor. While global financial markets were roiled by “Brexit”, the resulting economic uncertainty is likely to cause an international rush for stable investments. U.S. real estate, and Boston commercial real estate in particular, stand to benefit from such a trend.
International investment has been a large part of Boston’s real estate market for several years. Since 2015, investors have poured 3.1 billion dollars into the Boston skyline alone, with high-rise office buildings and condominiums fetching record prices. Even a strengthening U.S. dollar has not discouraged global investors, who own many of Boston’s largest commercial properties.
What changes with Brexit, is that global investors are skittish about London’s financial future. The U.K. as a whole stands to lose billions of dollars in foreign investment, since everything from European Union trade agreements, to monetary policies and military cooperation is in question. A flight to safety to U.S. real estate is a likely outcome. And since Boston has long been a preferred market for foreign investment, we could see an acceleration of activity.
U.S. investors are also sticking close to home as EU uncertainty lingers. Dollars that once flowed into euro funds and foreign real estate are being re-targeted to U.S. REIT’s and domestic brick-and-mortar investments. Already, the Dow Jones Industrial Average has recovered from Brexit, and is flirting with new highs as money stays local. A one-two punch of increased foreign and domestic investment in Boston could be great news for our real estate values.
Not all analysts are optimistic, however. Prior to Brexit, PIMCO released a bearish outlook for U.S. commercial real estate, on the basis that debt maturities could require over-leveraged investors to sell, causing a potential drop in market values. We’ll explore PIMCO’s projections in an upcoming post. For now, it’s fair to say that PIMCO did not account for Brexit, and that Boston tends to perform better than most of the U.S. commercial markets.
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