Brexit: looking forward means looking back

News of historic data surrounding the performance of UK commercial property immediately after the referendum vote in June 2016 has played a role in providing the context needed to reassure the market, as well as those all-important overseas investors that have, obviously, shown even greater appeal as the potential for doors throughout Europe to close, intensifies.  

A recent report from the Property Industry Alliance (PIA) revealed that the total value of all UK commercial property fell 4.6% from £926bn in 2015 to £883bn in 2016.

Indeed, the sharp dip in the value of commercial property following the referendum is no surprise and the significant recovery that has taken place since then clearly demonstrates the attractiveness of the UK and London in particular to global investors that do not have the inherent constraints of being based in the EU while there is a level of uncertainty around future trading relations.

The London office development market alone generated a massive £4.8bn between July and September this year, with two thirds of this sourced from Asian Investors. Indeed, the CRBE Index cites that the third quarter of 2017 UK saw commercial property values increased 1.4% overall, the strongest quarterly performance of 2017.

The plunge in the value of the pound since the vote has also offset general uncertainty for many overseas investors who are looking at long term investment and see Brexit as an opportunity rather than a threat and naturally, this outlook has helped maintain business property value.

For investors as a category, the most important deciding factors are operational rather than political: A recent poll of 148 leading real estate investors indicates that the majority believe pricing and lack of available stock to be the biggest obstacle to placing capital in European real estate during 2018 – so unsurprising factors that are well within the control of the market, and ones that the figures above show are being addressed.

Although uncertainty is still very much at play, commercial property is currently a sub sector set to weather the storm, given that the initial fears illustrated by these latest figures have significantly improved in line with a realisation that global interest in this area is unlikely to wane. Investors and developers alike appear therefore to be back to competing against the more familiar criteria of stock availability and price favourability.

Jon Lloyd, partner within the real estate practice of Gowling WLG

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