The ongoing economic crisis in Greece jumped ferociously back into the world’s headlines this summer, when Greek residents voted to reject European austerity demands and European leaders agreed on a third bailout deal for Greece in exchange for strict reform measures.
Clearly, these are tough times for the people of Greece, as the country’s stagnating economy is giving rise to a humanitarian crisis as well. Media reports of the situation are truly sobering to contemplate.
Reflecting on the situation in Greece naturally leads people in our industry to this question: What will it mean for the U.S. economy and commercial real estate markets? Answer: Probably not very much.
While fully acknowledging the turmoil and upheaval a “Grexit” might have created for the global economy and especially the Eurozone, it’s hard to see it having much of an impact on commercial real estate investment in the United States. For starters, Greece represents only 2.0 percent of the Eurozone GDP, and while some international investors, such as those from Canada and Germany, have been especially active in the U.S. commercial real estate markets recently, we haven’t seen a lot of Greek money flowing into this country over the past few years. In fact, Greek real estate investment in this country doesn’t even amount to a rounding error when compared to that of other, more active countries.
If the Greek crisis has any impact at all on the U.S. commercial real estate sector, it could actually be a slightly positive one. While Europe as a whole should be well-positioned to withstand the chaos in Greece, the crisis could lead to some uncertainty and risk aversion in the global financial markets. As a result, the Fed might be compelled to keep interest rates lower for a longer period than it would otherwise, which would in turn of course keep mortgage rates lower.
Furthermore, international investors seeking a safe haven for their dollars in the midst of whatever uncertainty is caused by the situation in Greece might very well turn to U.S. commercial real estate assets, particularly those in core markets. The long-term stability of these properties, as well as the transparency of the U.S. economy, would certainly prove to be a soothing balm to any investor’s nerves.
The U.S. commercial real estate market might feel some negative effects in the very unlikely event that Europe and its banks aren’t as well insulated from the Greek crisis as most believe them to be. If that proves to be the case European corporations and U.S.-based companies that generate earnings in Europe could experience a drop in their need for U.S. office space. Again, that’s a remote possibility, but one perhaps worth bearing in mind. A separate potential implication with downside consequences for the U.S. would be if the U.S. dollar were to make another sustained move higher still as a result of the turmoil. This would serve as a drag on U.S. exports and U.S.-based multinational corporations.
The situation unfolding in Greece is no doubt a harrowing one. Viewed through the very narrow scope of the U.S. real estate sector, however, its effect, if there is one at all, is likely to be quite limited.
John Gates is CEO, markets, Americas, for JLL, and is based in Dallas.