5 minute read
Bon Voyage EU, Hello Brexit – What is the Effect on Commercial Property?
As the UK is preparing to say bon voyage, ciao and adios to the EU in what may be the most dramatic break up known to our nation, it cannot be denied that the UK will be taking a giant leap of faith in our Government when we finally leave the EU.
It would not be unreasonable to presume that since the referendum vote, the snap general election resulting in a hung parliament and MPs quitting here, there and everywhere, that the commercial property market might be in disarray. However, the reality is not quite as bleak as one might suspect.
Goodbye to doom and gloom
A reason for this is that the drop in value of the pound following on from the referendum has attracted and incentivised non-EU investors therefore improving the UK’s commercial property value. For example, the recent purchase of ‘the Cheesegrater‘ building in London for £1.15 billion (26% higher than it’s valuation in September) was by Chinese developers.
This shows us that business owners and investors are not necessarily pursuing the traditional purchase of assets that may give a safer return in a time of political and economic tension as the UK is currently experiencing. Where it would be expected that investors might be inclined to look at other European countries, they are maintaining a certain element of confidence in the long term future growth of the UK economy. Further evidence of faith in the UK economy is that big companies such as Facebook and Google are confirming their plans to expand into London.
Despite some of these positive elements, it cannot be disputed that following the referendum the commercial property market paused, with businesses and investors reflecting and analysing their position. This, along with other trends, such as the increase of online shopping leading to a fall in demand for retail units, may have planted doubt in the minds of current and future businesses and investors of how valuable their property assets could be in the future.
The commercial property team at Hillyer McKeown has not felt a dip in workload due to uncertainty – work remains steady. Nevertheless, one observation is that while clients are perhaps acting more cautiously regarding spreading their risks, searching for attractive returns is leading to a rise in tenants seeking things like improved terms for break clauses to provide more flexibility in the future should they require it.
In relation to the commercial property market and Brexit, the upshot is that no matter how many articles you have read or how up to date you feel with the financial papers, it is difficult to fathom what the impact of leaving the EU is going to have on this sector. Not surprisingly, no one has the answers.
It is unlikely that we will understand the full implications of Brexit until a couple of years after it has been implemented. Right now, it is difficult to tell what the risks are, how big they are or when we can expect them to occur. Clarity and transparency are what everyone is looking for and due to the unknown nature of the Brexit breakup no one, least of all commercial property investors, is getting clarity. It is safe to say that we Brits are maintaining the mentality of ‘keep calm and carry on’.
If you are looking to invest (or maximise your return) and would like to discuss your options with a specialist contact Caroline, our Head of Commercial Property.