New research from Cushman & Wakefield has found that around £8 bn (€9.3 bn) of the £14 bn+ (€16 bn) worth of UK commercial property deals in the market on the day of the UK referendum vote have now completed.
According to the broker, which took a snapshot of the UK commercial property market on 23 June 2016, just 54% of the deals in the market that day have since closed. A further 15% of the properties are under offer, while 25% have been withdrawn and 6% remain unsold.
'By tracking deals from before the nation went to the ballot box in June we have gained a unique picture of how the market has subsequently reacted to the vote for Brexit,' commented Jason Winfield, head of UK investment at Cushman & Wakefield. 'Deals have taken longer to complete and a greater proportion have been withdrawn but, on the flip side, values have held up remarkably well reflecting the UK’s strong fundamentals. That said, we do not yet know the full implications of the UK’s decision to leave and how that will manifest itself in occupational markets.'
Location and asset type key
Overall, more than 200 office, retail and industrial assets have transacted, accounting for 45% of total investment activity in the second half of 2016.
Overseas investors represent nearly three quarters of activity in London, whereas in the rest of the UK, domestic players remain the dominant buying force at nearly 60%. This reflects the wider market – including assets put up for sale after the result of the referendum was known – with London seeing an influx of Asian capital, mostly from Hong Kong and mainland China.
Despite the delays, commercial property values have held up well, the research shows. The average discount between offer price and sale price is just 3% - 'a stark contrast to the plunge in values predicted by many commentators following the EU referendum result,' the report said. Assets located outside London have incurred an average 3.9% discount compared to a 2.4% fall in London.
Retail assets (in particular high street shops) have proved easiest to sell but have attracted a larger discount and shown a higher degree of variability in pricing. Offices have seen the second largest discount, with those outside London attracting a larger discount and higher degree of variation compared to London. Industrial assets – such as the warehousing which underpins modern supply chains – have, on average, sold above offer price by 1.3%.
Larger deals lagging
In the immediate aftermath of the referendum, progress on larger lots (£100 mln+) lagged well behind smaller (sub £20 mln lots) by three months, according to Cushman & Wakefield. While greater due diligence and delay might be expected even under normal trading conditions, said the broker, 'it is clear that investors were taking more time before signing off on significant investments'. By November, progress for larger lots had caught up and has since matched sub-£20 mln deals. Deals in the £20 mln to £99 mln range continue to lag.
'Typically you might expect transactions to take three months to go under offer – since the Brexit vote it has been taking up to five or even six months for deals to progress this far. The lower proportion of completed deals in the mid-range can be partly explained by a number of shopping centres which are currently under offer and we expect those to be sold in the near future,' concluded Nigel Almond, head of EMEA capital markets research at Cushman & Wakefield.