CHICAGO—Last week’s Brexit vote sent tremors through the world economy, and people around the globe have been struggling to understand its implications. But even though some worry Britain will plunge into a recession, and perhaps pull other countries down as well, the long-term effect on commercial real estate, especially in the US, remains unclear. However, UK voters did at least bring clarity to some issues.
“It’s going to extend the era of low-interest rates even longer,” David Scherer, a founder and principal of Chicago-based Origin Investments, tells GlobeSt.com. And that’s not just a personal opinion. “The market now estimates that LIBOR will stay low for an extended period.” And traders now believe with a high degree of certainty that the Federal Reserve won’t raise interest rates before December, and even then there is only a roughly 15% chance of a rate hike.
The expected low interest rates will create higher valuations in all asset classes, Scherer adds. “What we don’t know is how Brexit will affect growth,” and if it does, whether that will hurt U.S. real estate in general. Hotels would take a hit if the U.S. economy slowed, but other sectors such as office and multifamily typically show more resilience. In Houston and many other cities, for example, multifamily properties rise and fall on the strength of the healthcare market, which can grow even during downturns.