Brexit and its Impact on the Corporate Real Estate Marketplace
On Thursday, June 23, 2016, the United Kingdom held a referendum, known around the world as Brexit. The vote was to determine whether to remain in or leave the European Union (EU), and the surprising results in favour of leaving the EU created a state of upheaval in equity markets worldwide.
Of course, at Cushman & Wakefield, we followed the EU referendum closely to ensure we fully understood and were prepared for the impacts on leasing and investment activities to best advise our clients. We are looking forward to working with tenants and investors in the Greater Toronto Area suburbs to advise on how to properly benefit from implications on the current market events and their real estate portfolio.
What Brexit means for the Global Economy
While it is still rather soon to make specific statements on what the economic outcome of Brexit will be on a global scale, we expect to see a period of further uncertainty and volatility over the coming months, while financial markets and the political landscape of the UK and EU fully determine what the departure of the UK from the EU means.
Keep in mind that one day does not make a trend. Yes, there was a significant shake-up in the global equity markets, with a run up prior to Brexit and a pullback after the wrong result assumption was made. But consider past events that have shown that after hysteria calms down, economic fundamentals take over and REITs rebound swiftly.
What Brexit means for Real Estate Investors and Occupiers
We are already seeing, and can expect to continue to witness, a pause in investment activity as real estate investors and lenders take some time to watch and learn what is happening in the global market. Assuming things do not take a turn for the worst, and that past precedent prevails, we are assuming that investors will resume status quo, with record-setting commercial real estate fundraising.
That said, we forecast that Canada and the US will benefit from the volatility and become a safe haven for investors, with assets and foreign capital growing in North America. High-quality real estate in major markets, including the Greater Toronto Area, will likely see renewed interest for EU members.
As with investors, we expect general financial decision making to slow down while businesses take pause to gather data and understand the potential impact of the global shake up on their operations and organizations. That said, GTA occupancy decisions will likely see more impact by the Toronto real estate market than global market trends.
The most important indicators to keep an eye on are consumer and business confidence metrics. The correlations with leasing fundamentals are strong and persistent trends in these metrics tend to determine the direction of occupancy and corporate real estate trends in Toronto.