Brexit to drive 25% fall in UK investment property market
Research by property services firm Cushman & Wakefield suggests prime investment property transactions could fall by a quarter in the UK in the wake of the Brexit vote.
In a report titled Brexit & The European Property Investment Market the company suggests that short-term impacts will be felt more in terms of activity levels in the European property market, rather than volatility in the valuation levels of prime property. Prices will be supported by lower supply and lower interest rates, it forecasts.
And on a pan-European basis, while the UK investment property market is likely to experience a si25% fall in transactions against the 2014/15 period, it is expected to rise in other parts of the region to cushion the blow.
Cushman & Wakefield expects an overall 6% fall in the EU investment property market volume this year versus a 9% rise should the UK have voted to remain in the EU.
Other effects felt from Brexit will be a wider gap between prime and secondary property yields. There may be more differentiation in the way financing works going forward for the two types of investment property.
David Hutchings, report author and head of EMEA Investment Strategy at Cushman & Wakefield, said: “Some players will hope to stand back to see how the situation develops but for many there is a need to act with investment capital building up and secure homes for investment needed. Importantly however this is not akin to the aftermath of the collapse of Lehman’s or the eurozone crisis – we now have different opinions being voiced on what is likely to happen and these differences should create a more active market of buyers and sellers as events progress.2
“In terms of what this means for investment strategy, some themes are emerging. Investors should be poised to take advantage of uncertainty or market overreactions where possible, and alert to any shifts in sentiment and geopolitics such as greater alignment with Asia.”
“Domestically orientated sectors such as retail and last mile logistics look attractive targets – but only for modern property and prime locations that meet occupier needs. In the UK, global hubs such as London and Cambridge as well as other globally competitive locations will be in favour while across Europe, investors should be targeting winning European cities – Frankfurt, Paris, Dublin, Luxemburg, Milan, Amsterdam, Berlin and global markets led by Singapore and New York.”
“Capital value trends are harder to judge as new assessments of risk are considered. The potential for the UK to remain in the EU must also still be considered. However, over time assuming the UK does exit, it will face a higher risk free rate, offset in the short term by lower interest rates. Elsewhere, risks to financial stability and to the EU as a whole may be factored in to pricing in some markets, resulting in a real need to focus on the fundamentals of a location and what makes it work for business, rather than just what political union or country it lies in.”
To read the full report click here: Capital_Views_EMEA_Brexit_July_16