UK property returns are back in positive territory, but volatility lies ahead as the country plans for its exit from the European Union, according to Fidelity International.
With September figures from the MSCI IPD UK All Property Monthly Index showing a 0.25% total return, the immediate price correction after Brexit appears to have been short term, Fidelity said.
Matthew Richardson, head of real estate research at Fidelity International, said the immediate price correction following the vote in June was a “short-term correction” rather than the beginning of a “sharp and sustained market fall” across the UK.
After two months of negative returns, average capital values declined by just 0.2% in September.
Rental growth also recovered, climbing from just 0.03% in August to 0.2% in September.
UK property market fundamentals remain positive for now, Richardson said.
“Looking ahead,” he added, “we anticipate a short period of price stability as investors look to place money before year-end, but, looking further ahead, there is likely to be further price volatility once Article 50 is activated in March next year and the terms under which Brexit will take place become clearer.”
UK property market fundamentals remain positive for now, Fidelity said.
“The low-interest-rate environment continues to support UK businesses and, despite the increased uncertainty stemming from Brexit, tenant demand remains strong, and there is still a shortage of suitable stock across most UK cities and markets,” Richardson said.
Fidelity continues to see weight of money and low supply of quality stock putting downward pressure on yields, although predominantly in the logistics and industrial sectors.
Office and retail sector pricing is being held up for the same reasons, although it remains stable rather than seeing continued yield compression.
“In retrospect, it was perhaps naive of some commentators to assume real estate values could fall sharply in isolation, given the recent strength of equity and bond markets,” Richardson said.