Expo Real: Brexit has little impact on long-term outlook for UK market

UK commercial real estate is still attractive for the long term, despite the country’s vote to leave the European Union, delegates heard at Expo Real in Munich today.

Speaking on a panel moderated by Richard Lowe, IPE Real Estate editor, Marcus Cieleback, head of research at Patrizia Immobilien, said that while Brexit had “some influences”, the UK “in the long run is still attractive”.

The Brexit vote, he said, “could offer some opportunities”.

“A very long period of insecurity”, which could hold back decision making, is also likely, he said.

“US investors are less concerned than Europeans,” he added.

The UK’s vote to leave the EU, said Witsard Schaper, director at the Canada Pension Plan Investment Board, has not altered the investor’s long-term view of the country.

“We still see the UK market as attractive in the long term,” he said. “We look at the UK on a global basis. We are definitely looking at opportunities, but we haven’t seen the kind of pricing that is necessarily a 10-year institutional product.

“I don’t think the UK is particularly cheap right now because of what’s happened.”

He said the UK was “likely to have had a slowdown anyway” and that the vote was a catalyst, as “it was a moment late in the cycle anyway”.

Mahdi Mokrane, head of research and strategy for Europe at LaSalle Investment Management, said Europe as a continent looked unstable, with a number of elections forthcoming.

Brexit, he said, was just one issue for investors to contend with.

“There are several risks today,” he said. “Highly fluctuate currencies make life incredibly difficult.”

Cieleback said the UK market was “turning before the referendum”, while Mahdi said he had “not seen many striking deals with a huge discount”.

He added: “Yields haven’t moved much.”

For Jeremy Plummer, head of EMEA at CBRE Global Investors and chief executive at CBRE Global Investment Partners, the immediate correction in asset values is “quite a wide range”.

“For some assets, yields have hardened, there’s been a flight to safety, and that’s been related to location and property,” he said.

Of tenant fallout from the referendum, Mokrane said: “We only had one leasing deal fall out due to Brexit.”

Office tenants, he said, are asking for more flexibility, adding: “They want to keep their options open.”

Cieleback, who said banks would try to keep a headcount in London, does not envisage an exodus from the UK capital.

Plummer said the long-term view was that banks were “already thinking of moving out to less expensive locations”.

Front office will most likely be kept in London, but marginal operations moved out, he said.

Plummer said short-leased London offices were most affected, with long-lease warehouses sitting at the opposite end of the risk spectrum.

“There are marked, different perceptions of property types,” he said.

Mokrane said some regional markets had held up “pretty well”, pointing to the industrial sector and Manchester offices.

“We will look at fewer markets and stick to those,” he said.

Cieleback said “only a handful of investors have deep enough pockets” to execute deals.

For Plummer, opportunity exists in smaller lot sizes.

“We remain very active in the market, but there aren’t any bargains,” he said.