In late June, of this year, the British voted to exit the European Union. Since that time, there have been many speculations as to how this change may impact the economy, for both the United Kingdom and for the United States. Kevin Maggiacomo, President and CEO of SVN, is very good about providing his insights on significant events that may have an impact on the commercial real estate industry. The BREXIT (British vote to exit) is no exception to this. In the blog post excerpted below, Kevin makes three very good observations about the BREXIT, and how it may impact the United States and the commercial real estate industry. I invite you to read his blog post below and then click the green link to read the full article on the SVN corporate blog.
Last week the world woke up to the implausible, the United Kingdom voting to leave the European Union. Immediately global and domestic equity markets have been volatile with rapid downside moves while perceived “safe” assets such as gold and US Treasury bonds soared in price. REIT stocks, perhaps a leading indicator of the market reaction and a flight towards the tangibility of commercial real estate, have fallen less than the market averages in the days since the BREXIT. All of these reactions, and most that will occur in the coming weeks, are simply reactions to the uncertainty; as nothing has really happened yet. Here is what is known so far:
- The UK will suffer from the uncertainty in the short term and probably the long term, assuming Parliament moves forward with the voters’ wishes. Local and especially multinational firms are undoubtedly going to curtail plans for investments in the UK and may even scale back workforces – or at a minimum – rethink future hiring decisions. This alone can and probably will put the UK into a recession, the severity of which could be high if the uncertainty persists. The main unknown factor is how the European Union will react; if they seek to be punitive and harsh to serve as a warning to other countries considering defection, then this could be an ugly “divorce”. Since the UK did not adopt the Euro, this “divorce” is somewhat analogous to a couple separating who never joined finances – still chaotic but not as bad as it could be.
- The British Pound will remain low and the US Dollar high. The currency moves, mainly a flight to Dollars from Pounds and Euros, should persist for some time, with higher volatility of course. This will harm the UK the most, and the US will see some benefits in terms of lower fuel costs and prices of import goods. Conversely, US exports will be more expensive so trade flows could become more imbalanced. According to the Wall Street Journal, the UK only accounted for less than 5% of US export volume, so the direct effect should be ….