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New York's Office Market Isn't Getting The Brexit Bump Many Predicted

New York

When the United Kingdom voted to leave the European Union in June 2016, the world reeled, but some New York City players rubbed their hands with glee.

Brexit

With London under a cloud of uncertainty, some hoped foreign investors would redirect their capital to New York, and office leasing activity in the city would spike as major business pulled out of the U.K.

But industry experts told Bisnow that, while some may have been banking on a fresh round of deals, the impact has been far less dramatic.

“People underestimated the diversity and the size of the U.K. employment base,” said Cushman & Wakefield Chairman of Global Brokerage Bruce Mosler, who believes office dispersion is happening in the English capital, but to a limited extent. “I think there may have been some indirect benefit [from Brexit] to New York, but it’s not as substantial as people originally suggested might occur.”

New York's Office Market Isn't Getting The Brexit Bump Many Predicted
Cushman & Wakefield Global Brokerage Chairman Bruce Mosler

The U.K. is due to formally leave the EU March 29, 2019, although that date can be extended with the EU's consent. The negotiations between the two have been fraught in recent months.

It is still not clear, for example, if the U.K. will remain within the single market — which allows for the free movement of goods, services and people — but it is looking increasingly unlikely. Negotiations on new trade deals and treaties are scheduled to start in the next few weeks.

In the wake of the referendum, there was speculation there would be a financial services exodus from London, and that big banks could look to New York as an alternative.

In January 2017, Goldman Sachs CEO Lloyd Blankfein described Brexit as a "gainer" for New York, as the firm put plans to push further into the U.K. on ice. In November, however, he told French newspaper Le Figaro that Paris and Frankfurt are likely contenders for the U.S. investment bank’s “post-Brexit” hub.

JP Morgan Chase is reportedly planning hubs in Dublin, Frankfurt and Luxembourg. Royal Bank of Scotland is planning on expanding its Amsterdam base, as Bank of America and Barclays look to expand in Dublin.

While Brookfield Property Partners CEO Brian Kingston told analysts on a call in November that London has seen the lowest leasing activity in a decade, C&W figures indicate 2017 was a strong year for the city — with the amount of space leased going up by 15% year-over-year.

“It’s not like rats fleeing a sinking ship,” Colliers International Vice Chairman Marcus Rayner said. “I don’t see repatriation or flocking to New York — that’s not going to happen."

Rayner added that most major businesses are still coming to grips with the real ramifications of the separation, and have not yet formalized their plans.

In terms of the investment sales market, there is no suggestion so far that the valuable foreign buyers are making a beeline for New York over London. London was named the top global city for investment in the annual survey of the Association of Foreign Investors in Real Estate, released this week, ahead of New York for the first time since 2014.

Brexit was considered less of a concern than it was last year, according to AFIRE Chairman Ed Casal.

Heidi Learner, Savills Studley economist
Savills Studley Chief Economist Heidi Learner

“It doesn't necessarily mean these trends are going to continue into 2018,” Savills Studley Chief Economist Heidi Learner said. “But certainly to the question of whether or not investors are concerned about the U.K. market — it's not borne out by either the investor survey or the recent transaction data.”

Foreign investment across all investment sales types increased in London last year, while it actually dropped in Manhattan, according to Learner’s analysis of data pulled from Real Capital Analytics. In 2017, the cross-border sales volume of office, retail, hotel, industrial and multifamily property in Manhattan fell 52% year-over-year to hit $6.6B.

In London, by comparison, it jumped by 19% to hit $8.2B (£6.3B).

“The political uncertainty around Brexit hasn't deterred foreign investors from putting money into London real estate,” CBRE Head of International Capital Markets in London Chris Brett said.

Some sovereign wealth funds may shy away from London, but most global investors still are not satisfied until they have holdings in both New York and London, he said.

"There's probably 12 key capital cities around the world that major foreign players want to invest in," Brett said. "London and New York vie for No. 1 and 2 on those lists ... And I don't see that changing for the foreseeable future."