The United Kingdom's vote to exit the European Union sent a shock wave of uncertainty through the global financial markets, with many stocks taking a beating. However, Florida investors may be interested to learn that real estate investment trusts, or REITs, could actually be helped by the Brexit.
REITs are considered safe and offer yield, but expectations of higher interest rates caused investors to begin to steer away from them last fall. Now anxious investors are flocking back. According to a senior REIT analyst at Sandler O'Neil, the rates of return are very attractive in the current environment. Experts say that REITs will also benefit from increasing commercial real estate prices, as foreign investors accelerate the pace of their U.S. office, retail and apartment purchases in the post-Brexit market.
New York City and San Francisco are already preferred markets for Chinese and Middle Eastern investors, and European market instability will only make American properties more attractive. Analysts say that investors view New York as a place to store value, with any growth considered an added benefit. Therefore, the Brexit could increase the amount of high net worth investors looking to park their capital for a while. As for U.S. REIT exposure in Europe, analysts say there is not a great deal. REIT stocks did fall during early trading following the Brexit vote, but they continue to outperform broader markets.
A successful commercial real estate transaction depends upon more than just market conditions. Real estate sales and purchases are subject to and affected by complex tax and zoning laws and regulations. Florida investors may benefit by consulting with real estate attorneys as they structure their deals.
Source: CNBC, "How the UK's exit benefits US REITs," Diana Olick, June 27, 2016