How Brexit changed the dynamics of UK commercial real estate: evidence from the roles of domestic and foreign monetary policies

Purpose - The main objective of this article is to investigate the impact of conventional and unconventional monetary policies led by the Bank of England, the ECB and the Fed on the dynamics of British commercial real estate markets between 2000 and 2023, using vector autoregression and structural vector autoregression (SVAR) models. We propose comparative analysis of eight commercial real estate markets, including financial and REIT markets, contrary to the previous literature. Design/methodology/approach - We consider the dynamics and returns of eight UK commercial real estate markets on a monthly basis, shedding new light on the monetary policies’ impact over 24 years. We proceed in three steps. First, we develop a structural VAR model. Second, we report the impulse response analysis. Third, we focus on the relative impact of the Brexit. Findings - We show that monetary policies have a highly significant impact on eight British commercial real estate sectors, with different implications. Favourable policies from the BoE and Fed have a positive impact on the returns of all asset classes, while the ECB has an investment drain effect. As an illustration of financialization, REITs seem to be a transmission channel for all asset classes. However, Brexit appears to mark a major turning point as the BoE and BCE monetary policy effects drop sharply after 2016. Practical implications - These results are valuable for investors, as the central bank’s monetary policies significantly affect the performances of their portfolio. They could also be beneficial to the central banks themselves, as we have entered a new policy cycle in 2024, and its effect on UK real estate remains uncertain. Originality/value - A parsimonious structural VAR model is used to study the dynamics of conventional and unconventional monetary policies led by the BoE, the ECB and the Fed on eight UK commercial real estate markets’ returns during 24 years, marked by important breaking points: Office City, Office Mid Town & West End, Office Rest of South East, Office Rest of the UK, Retail South East, Retail Rest of the UK, Industrial South East and Industrial Rest of the UK. Our results, highlighting the relative importance of conventional and unconventional monetary shocks, identify the existence of heterogeneous effects of monetary policies on the different markets, shedding new light on the transmission channel played by the REITs and stocks markets.