7 minute read
3 questions about Brexit and the UK Commercial Property Market
Amid escalating uncertainty around Brexit, as an owner or investor in commercial property you might be asking: should I buy or sell? The answer you might have heard is an inconclusive, ‘Yes, No or maybe’. This response is with good reason as we all continue trying to navigate the choppy waters of Brexit, but is no aid to decision-making.
This blog deals with three key questions clients have continued to ask our team of commercial property experts since 2016.
- What will happen to the value of properties should a deal be reached (or not)?
- Are we at the beginning of a slump in commercial property?
- Could Brexit be a golden opportunity to thrive?
Taking each in turn, while it may feel as though this uncertainty has caused demand for commercial properties to fall, the reality is that for some this there has simply been a pause while tenants and owners alike consider the possible pros and cons of the post-Brexit market.
What about commercial property values post-Brexit?
Post-Brexit, difficult times are predicted for all aspects of the economy as the UK shifts away from the EU. There has been speculation that in terms of capital value, there could be a fall of up to 4% over the next two years and valuations of properties may continue to decrease. Yet as long as there are no major shocks, property investment is expected to continue as part of a longer-term trend, encouraging economic growth.
Some commercial property investors are making shorter term, localised property investment decisions in ‘hot spots’ or areas of regeneration to weather the immediate impact of leaving the EU. For some this could provide breathing space until the economy settles post-Brexit.
Are we heading for a slump in commercial property investment?
You would be forgiven for thinking that chaos resulting from the uncertainty of Brexit has had a detrimental effect on the commercial property sector. However, overseas buyers are piling into London like there is no tomorrow … continuing to support demand. This is due to the drop in value of the pound attracting overseas developers to invest in UK property. This is an encouraging sign of confidence in the long term growth of the UK economy. Investors and speculators are also expected to react to a strengthening pound and its potential to tighten the reins on the property rush.
It is feared that a no-deal for Brexit will cause more problems for the British economy and in turn for the commercial property sector as there will be even more uncertainty as to what will happen than if a deal is accepted. It is claimed by capital economics that the commercial estate valued in the UK are likely to fall by somewhere between 5% and 9% in two years, while the Bank of England claims it could fall by as much as 27% over 5 years. Either way, it is unlikely that we will know the true effect of Brexit until well after it is implemented. Evidence of faith in the UK economy from companies such as Facebook and Google confirming their plans to expand into London should encourage confidence. Also, investment on this scale can act as a magnet for others, stimulating growth and opportunities.
What opportunities does Brexit offer?
Meanwhile other trends in commercial property are likely to continue. The shift away from high street shopping to internet shopping is one which has called the future of retail property into question. However, while this is indicative of a shortfall in demand for retail space, it is catalysing growth for the industrial warehouses sector. By consequence, RICS estimate that rental growth for industrial spaces could reach as high as 35%. This not only demonstrates a positive future for commercial property, but also for investment opportunities that will lead to more growth in post-Brexit Britain.
With regards to Brexit and commercial property, the question remains: should I buy or sell? The answer is to weigh up the market trends, research the type of property and consider the region before taking action.
If you are looking to buy or sell commercial property and would like to discuss your options with a specialist contact Caroline, our Head of Commercial Property.
We offer an initial free, no obligation discussion and if we can help you we can then advise you about the process, cost and how long it might take. Contact our team of commercial property experts by email or phone.