NEW YORK CITY—For the July 2016 Full Nelson, I had the pleasure of sitting down with Ken McCarthy, Principal Economist, Applied Research Lead at Cushman & Wakefield, to discuss the impact of Brexit on New York City real estate.

James Nelson What are the global implications of Brexit?

Ken McCarthy: First of all, it was a shock. Pretty much everyone expected going into the vote that the British people would vote to stay within the European Union. Markets immediately had to account for that and that meant generally dropping pretty rapidly, particularly equity markets. If you step back and think what that means though, it is probably not as dramatic result on the US. US trade with the European Union is not that large, and if there is going to be an impact on the US in terms of an economic impact, it is most likely going to be through equity prices dropping and causing our confidence to drop.

Nelson: What are we expecting in terms of real estate values, specifically here in New York?

McCarthy: We have a global environment that has been accumulating capital and building up capital to invest in real estate over the past several years. Real Estate has become much more of a core asset for portfolios than it in was in the past. So we have seen a lot of funds raised to invest in real estate globally. Now all of the sudden one of the major places to invest has more questions about it than it did before. In a situation like that, investors, particularly conservative investors are more likely to look to other locations. We would expect the US to be the first place they would look. The short term impact of this vote would be for more capital that might have gone to the UK or other parts of Europe, to come instead to the US, particularly New York, which has always as the market that has always attracted the most investment.

Nelson: Are London based investors still going to have capital to deploy outside of the UK?

McCarthy: I would expect in the near term that it will probably stay the same, maybe even increase. In the long term it depends on how the economy performs. If the British economy weakens or goes into a recession because of this, it is likely that there will be less capital to invest than there was in the first place.

Nelson: Does this vote have a negative impact on US hospitality and retail?

McCarthy: We have to remember that New York is the #1 or #2 tourist city in the US. A lot of the tourists that come to New York are from the US, but the foreign visitors due tend to both stay longer and spend more money. We could see a slowdown from foreign visitors, particularly from the UK, especially from this combination of a stronger dollar and a weaker Europe.

Nelson: For the residential market, are we hoping that some of the diverted capital will help sell off some of our ultra-luxury apartments?

McCarthy: The actual number of units is not the problem, but all the rental product for the most part is luxury product. In the luxury market, the top 10 to 20 percent of the market, rents are not trending up, in best cases they are flat, and in many cases they are slipping or we are seeing a record number of landlord concessions.

Nelson: Without a 421a, I don't even know how you build rental right now. We are not selling land right now for rental, so we just need to get through this batch of available units.

McCarthy: The people who are buying the $10 million plus apartments are not going to be that concerned with what is going on in London, they may look at it as an opportunity with eh price of the pound down. Overall I do not see this changing where people are going to buy their apartments.