The UK property market is bracing itself for a very hot summer after a clear majority of the British public voted to leave the EU in yesterday's historic referendum.
The referendum result, with a clear vote to leave the European Union after 43 years of membership (by 52% to 48%), is opening a phase of uncertainty. The financial markets are in turmoil and sterling, as widely predicted, is plunging to 30-year lows.
Looking beyond the knee-jerk market reaction, however, the referendum result is likely to lead to renewed market activity in the property sector. The first half of the year has been characterised by a wait-and-see attitude, with many investors delaying decisions until after the vote and a consequent decline in transactions.
Now activity is likely to pick up quickly, as many investors seek to take advantage of the fall of the pound to make acquisitions. But some deals that had been negotiated will collapse, as they contained a ‘Brexit clause’ that makes them void in case of a decision to leave the EU.
On the positive side, the retail sector and the residential sector in London are likely to benefit from bargain-hunting investors taking advantage of the fall in the value of the pound. The hotels sector will also thrive as tourist numbers rise because of a weaker sterling.
London will be adversely hit
On the negative side, the office sector in London and particularly in the City is likely to be adversely hit as many banks and financial institutions have warned that they might scale back their presence in the UK and move to other European capitals to remain in the single market.
‘We have been working on a number of deals, across several asset classes, ranging from student accommodation to residential development, which we expect to take forward now that a decision has been made,’ said Mark Clacy-Jones of Investec Structured Property Finance. ‘With the pound likely to continue to lose value over the next six months, coupled with a likely fall in real estate values, we anticipate renewed interest from sovereign wealth funds and private equity houses which will see new value and opportunities in our property market.’
Once the initial shock and the inevitable correction have occurred, it is likely that opportunistic overseas investors will see the referendum result as a buy sign. The Bank of England, which has already said it will take ‘all necessary steps to ensure financial stability’, is expected to loosen monetary policy further, which is likely to cause bond rates to fall and real estate yields to rise. The yield gap will widen and property will shine as an asset class by comparison, but questions remain as to how popular a destination London and the UK will be.
According to Lee Elliott, head of commercial research at Knight Frank, ‘over the medium term there are reasons to be positive. As the dust settles, and the economy stabilises, businesses will reconnect with the fundamental qualities of the UK as a business location, ranging from corporate tax rates to the large consumer market to the GMT timezone.’
Nicol Dynes
UK Correspondent PropertyEU
