The Real Deal Miami

Brexit: panic pervades — yet Miami may benefit

UK’s vote to ditch EU could boost Miami's commercial and resi markets

June 24, 2016 03:45PM
By Ina Cordle and Konrad Putzier

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2011 photo of the Miami skyline and the United Kingdom's flag

2011 photo of the Miami skyline and the United Kingdom’s flag

The day after Britain’s shock vote to leave the European Union, global markets are in freefall, with some economists already predicting a new global recession. But this worst-case scenario for Europe may actually work out in favor of the South Florida real estate industry – with one big caveat. Here’s what Miami can expect:

Continued low interest rates

The Federal Reserve already backtracked on its plans to continue raising interest rates this year. Britain’s vote to leave the EU creates further global uncertainty and raises the specter of a recession, making it more likely that the Fed will delay raising rates even longer. That, taken strictly by itself, is good news for Miami’s real estate industry. It means cheap financing.

“Mortgage rates will tumble following the Brexit vote, possibly hitting new record lows,” wrote Bankrate’s chief financial analyst Greg McBride. And it means the spreads between bond yields and commercial real estate cap rates are unlikely to shrink, which should help prop up property prices. (If interest rates rise, cap rates typically rise too: Noone buys an office building with a 4-percent cap rate if you can get virtually risk-free treasury bonds with a 5-percent yield. If cap rates rise, property prices by definition fall.)

Miami could gain in luxury residential race

Remember when London was the most popular city for foreign billionaires looking to stash their cash in some luxury penthouses? Well, those days could soon be over. A collapsing pound, likely economic turmoil in Britain, and uncertainty over London’s future role and status within Europe will likely put an immediate damper on London’s property market. In an analysis released Friday morning, London-based brokerage Knight Frank did its best to comfort Britain’s property owners, saying “it should be remembered that the UK is a country with 60 million wealthy consumers.”

But the damage is done.

By appearing more stable in comparison, Miami is set to benefit and may well attract more foreign wealthy buyers seeking a stable and safe market to invest in.

“What has happened is there is a whole lot of uncertainty introduced to Britain, and in particular the London property market, and London being a key gateway city that has attracted a lot of international interest, now seems a lot more insecure,” Gerard Yetming, executive vice president of Colliers International South Florida told The Real Deal. “So a lot of those international investors that had flocked to London are going to explore other global gateway cities like Miami and New York.”

Miami’s commercial properties will also be in demand

Yetming said the effect will also spill over to commercial properties. “It’s going to be across the board,” he said. “Historically, the English investors have been in the residential space in South Florida, at least, but other international investors Asian, Middle Eastern and other European investors  are going to look at Miami for all kinds of opportunities.”

Added Louis Archambault, a partner in the Miami office of Arnstein & Lehr LLP.  “When there is a lot of uncertainty you look for a stable situation, and a lot of real estate investments are safe investments in terms of land banking…. And South Florida is not that far… it’s an easily reachable destination from London.”

And here’s the big caveat:

All of the above only really matters if the world economy stays in decent shape. But if Brexit leads to an economic crisis in Europe that spills over into a global recession, no one in Miami’s real estate industry will fondly recall the day Britain voted to leave the EU.