The risks of the referendum on Europe are weighing heavily on the market in the UK and could have an impact in Europe as well, but it is unlikely to be dramatic, delegates heard at the PropertyEU European Outlook Investment Briefing, which was held in London on Tuesday.
If next week's vote is for Brexit, as several opinion polls predict, 'it will be a bump in the road for real estate, not a falling off the cliff,' Jos Short, executive chairman at Internos Global Investors told the packed room. 'Do not ever underestimate the resilience of the UK economy and of the British property market,' agreed Alexander Fischbaum, managing director, AF Advisory.
Sterling will be the first casualty of Brexit. 'The results will be magnified,' said Dr Walter Boettcher, research director & economist of UK & EMEA Research at Colliers International. 'The markets will move against sterling in a big way, any weakness will be exploited. We have already seen for weeks the close correlation between the pound and the polls.'
As the governor of the Bank of England Mark Carney has clearly said that he will use all the tools at his disposal to stop the economy being too 'compromised', Boettcher expects an increase in interest rates: 'The impact would be a significant re-pricing, what now is a moderation of yields would lead to immoderation.'
The weakening of sterling (-10-15% according to most forecasts) would also work in favour of residential, especially prime, as foreign investors would leap at the opportunity to buy cheaper assets. For commercial property it would be a different story, with offices in the City and the occupier market being the worst hit.
The impact on investors will be different depending on their time-frame. 'Short-term investors will suffer the most,’ said Boettcher. ‘Private equity and developers will be out, there will be redemption sales, while opportunistic and long-term investors will come in after re-pricing. There will be an unpredictable phase, but after a while stability will return. Brexit is alarming in the short term, but in the longer term it could lead to interesting developments.'
In another scenario, if the vote will be to Remain, business as usual is likely to resume after a brief rally. ‘There will be a lot of activity in a short space of time, there could even be gridlock,' said Boettcher. After months of wait-and-see, the huge pent-up demand will lead to a burst of activity.
'There was a significant boost to activity on the property market in Scotland after the referendum on independence, and I expect to see a similar boost to the UK and to Europe as well in case of a Remain vote,' said Simon Mallinson, executive managing director, EMEA & APAC, Real Capital Analytics.
According to Boettcher, the main beneficiary of a vote to Remain will be secondary cities in the UK: 'It will lead to huge regional redevelopment and the Northern Powerhouse will become an important ten-year-long opportunity.'
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Outlook Europe H2 briefing programme
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The London event - which attracted over 100 real estate professionals - was the first of three morning events in PropertyEU's annual Outlook Europe H2 investment briefing programme.
Outlook Europe H2: Germany & European Markets in Hamburg
The discussion on a potential Brexit and other threats and opportunities for the development of the real estate market takes on a more Continental European flavour for the next event, which is hosted by Union Investment Real Estate in Hamburg on 22 June, a day before the British public head to the polls.
Investment specialists including the speakers from Union Investment, Catella, DREF, Corestate and AF Advisory will look at the implications of a majority for 'stay' or 'leave' in the referendum, and consider whether European real estate markets will experience an investment bounce in the aftermath of the vote. The panel will also examine other key investment trends, both in Germany and continental Europe. What are the strategies best suited for investors at this point in the cycle? Which sectors are likely to outperform?
European Real Estate Opportunities - Investment Outlook 2016 in New York
Six days after the referendum, PropertyEU's second European Real Estate Opportunities seminar for North American investors in New York will serve as a early briefing on the impact of the 'Brexit' result, as well as insights and local intelligence on the investment outlook, macroeconomic and politic environment across Europe.
Click here for more information and to sign up to the Outlook events in Hamburg and New York
