EU and You: What Brexit Means for the Commercial Property Market
With Article 50 having been officially triggered, Brexit negotiations are well underway as the UK prepares its ciaos, au revoirs and auf weidersehns to our European stablemates. This so called “Hard Brexit” (confusingly named if only for no “Soft Brexit” alternative ever being suggested) is riddled with ambiguities, and the commercial property market looks to be no different. Since the vote’s ground-breaking result, the market has been a series of unexpected peaks and troughs, now dancing a tightrope of predictions nestled somewhere between ‘educated’ and ‘uncertain’.
Much of what you can find on the internet paints a far bleaker (if maybe reactionary) picture for residential property than it does commercial, with over a million UK residents stalling plans to purchase a residential property since the referendum result. Yet, as the complexities of the deal unravel, we may find that where the residential market falters, the commercial market can prosper; buy-to-let landlords may suddenly find a surge in rentals amidst this reluctance to buy, for example.
As we’ve mentioned in previous blogs, the faltering value of the pound lent itself to a rush of interest from foreign property investors, and this is not a trend that looks set to subside any time soon. Furthermore, though Trump’s temporary ban on allowing citizens from Muslim countries into the USA was rightfully shot down, the feeling of animosity from investors of these countries will undoubtedly steer their options towards our shores.
But many outlooks, be they optimistic or pessimistic, typically prove short-lived. In the quarter following the Brexit vote, commercial property sank to its lowest level in four years; sales prices were dramatically reduced amidst stories of European investors pulling out of deals; German investor KanAm’s withdrawal from London’s Wood Street office property saw £10 million slashed from its original £190million asking price, whilst the cheaper £90million Wardour Street property was withdrawn altogether.
Fast-forward to January of this year, however, and the RICS are reporting those aforementioned foreign investors injecting new life into the market. Buildings might not be selling for what they once were, then, but Britain could be set for the future if companies of more populated countries are as eager to invest as recent figures suggest Maintaining this interest may prove to be crucial, however, and it falls on the industry to keep those investors chomping at the bit.
In our January blog, What 2017 Will Mean for the Commercial Property Market, we reported how multiple square feet of office space is still awaiting development whilst adoption rates slump significantly. Since then however, the Government Property Unit, on advice from BNP Paribas, created a so-called “Government Hub” from 500,000 square feet leased in Canary Wharf from Barclays. We also saw Apple snap up a major letting in Battersea.
It’s rental rates that are expected to be less explosive, however, with prime rates expected only to be steady as rents on secondary properties decline. Lease terms will need to be more flexible, with occupier incentives leading the dangling metaphorical carrot.
On a broader, further-thinking scale, the impacts on EU countries cannot go ignored. With Germany being one of the world’s largest exporters, our departure from the EU sees them down one major trading partner. It’s a status they stand to lose once the UK withdraws from the free-market – though it’s unlikely trading countries will hold this against them. This is before considering countries such as Belgium and Ireland, whose smaller open economy will see them suffering the loss of a key player in markets and exports.
Brexit has proven one of the most controversial, divisive referendums in contemporary British history, and it’s hard to escape an overwhelming displeasure amongst a great many property agencies – this revealing study from Hogan Lovells is as thorough as it is bleak. But with the Brexit wheels already in motion, and many agents expecting only the unexpected, the anecdotal evidence suggests that nothing can be predicted. Perhaps, dare we say, comparisons are becoming irrelevant; this could mean a whole new beginning for the industry – false starts and all – and where it goes from there will depend on how willing we are to adapt to the future, rather than how staunchly we compare to the past.
In the interest of maintaining political transparency, Ryan Scully would like to divulge that he voted remain. His reasons were partially political, but swayed mostly by his opinion that European countries get the most exciting Haribo varieties.