Searching for likely outcomes amid uncertainty
January 31 is the due date for Brexit to happen. Boris Johnson, Great Britain’s Prime Minister, selected that date as the date for his nation to divorce itself from the European Union, with or without a deal. The result, not surprisingly, is that those on both sides of the issue have varying predictions about the impact of the transition period—ranging from a slight blip to a collapse of the global economy.
While many of the issues will most likely be contained to Great Britain and other EU-member nations, investors in the United States are curious about what to expect when the Brexit pebble is tossed into the pond and the ripples or tidal waves arrive on American shores.
Brexit 101
From the moment of its inception, much of the UK was never really convinced that a coming together of European nations could work. In recent years, though, that uncertainty has grown, especially as additional countries were allowed to enter. There is notable skepticism from some analysts about Central and Eastern European nations that have not fully embraced representative democracy, and Southern European nations that are not considered fiscally disciplined.
The Brexit issue is a divisive one for Europe, and it has turned out to be just as divisive on British soil. While EU-member nations will certainly feel the loss, experts generally agree that UK citizens will most likely absorb the brunt of the divorce, deal or no-deal. How long those consequences last is anyone’s guess. Among the key predictions are:
- Trade deals and tariffs will all have to be renegotiated. Until this is accomplished, there will most likely be a shortage of various goods and merchandise, especially of those imported by Britain. This list may include food items, building materials, and medications.
- Labor issues will have to be resolved. These include construction-labor issues since the UK relies on a pool of workers from Eastern European EU-member nations, and white-collar, European, non-UK citizens based in Britain.
- Uncertainty about the EU. There is a possibility that other European nations may follow the UK’s lead and leave the EU, creating a sort of economic domino effect.
Post-Brexit CRE investments in the UK
Brexit has a history of being an ever-changing process, and the word at the outset of its execution is caution. The greatest worry is that the level of uncertainty will result in a decrease in demand for UK properties, falling prices, and a reluctance to enter the UK CRE market.
Additionally, the dust of transition will settle at varying speeds. Besides labor and building material shortages, there may also be changes made to safety and building codes and legal and tax regulations, as well as to the process of moving funds across borders. To help navigate these waters, it will be essential to work with a UK-skilled due diligence consultant.
While a cautious approach certainly sounds like a wise option in times of change, it’s also important to remember that potential opportunities also appear. When Great Britain leaves the EU on January 31, expect to see an increase in new deals and projects, especially as UK investors seek to partner with the US, Canada, India, and China.
Post-Brexit CRE investments in the US
The most volatile Brexit challenge that may impact US CRE firms is cross-border investment, especially if other EU nations either leave the union or re-examine their own policies as a result of policy changes in the UK.
That being said, the US CRE marketplace is expected to see more positive outcomes as a result of Brexit. The combination of chaos in the UK, the attractiveness of REITs and EB-5 investments, and continued low-interest rates translate into global investors seeking the stability and economic security found in the US commercial sector.
Investors must be proactive
When reading Brexit predictions and various what-if scenarios, it’s inevitable to have even more questions and concerns. Because the situation is uncertain now—and likely to remain so for the next several years—US and global commercial real estate investors should seek answers from a skilled team, like the professionals at Morris Southeast Group.
To learn more about investment opportunities and what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
Tags: Brexit 101, Brexit deadline, CRE Investments, Post-Brexit CRE investments
