Datscha Talks: Is Brexit a good thing for UK CRE?

We spoke to Mat Oakley, head of European Commercial Research at Savills, about the effects of the referendum on the industry.

Following the referendum have you seen a direct effect on the UK property market?

Has the referendum had a direct effect on the UK property market? It might seem slightly surprising to say it but actually remarkably little. So, surprisingly enough both London and UK investment volumes for 2016 have exceeded our predictions, which were made long before a referendum was even a gleam in Mr Cameron’s eyes. On one side you could say it’s had no effect. We’ve definitely had a quiet-ish quarter in the third quarter of last year. We definitely saw a little bit of pricing volatility around then but we were already expecting that prices would fall a bit last year. We were past the peak in both investment volumes and yields and sure enough that’s happened. I think if you were a rabid optimist you could say it’s had absolutely no effect on the market, with a ‘yet’ in brackets…

Have you seen any deals falling through as a result of Brexit?

We definitely saw some deals fall through as a result of Brexit because there was that brief period of massive uncertainty immediately after the referendum. If you remember some of the UK – the majority of the UK – funds had a rush of redemptions and had to close. That led to some distressed selling, and that led to some quite big price falls on a handful of deals and a number of deals falling through. Looking back over the course of the last six months I reckon probably about 10% of the deals that we were tracking in the market fell through.

 

Are we likely to suffer from a lack of international investment due to Brexit?

Are we going to see international investment cool off as a result of Brexit? Again, I think the key word is not ‘yet’. Actually we saw a dramatic increase in non-domestic investor interest for UK real estate in the back end of last year, primarily because the pound fell by up to 20% depending on where you’re coming from. That was an instant bargain for particularly private investors who could move quickly. I think the pound is not going to recover very strongly over the next couple of years so UK commercial property is going to remain comparatively attractive. At the moment we probably expect them to remain the most significant players in the London market this year, and increasingly significant outside London.

mat oakley savills

Are there any positives for the post-Brexit UK commercial property industry?

Are there any positives about Brexit for the UK property industry? You are undoubtedly the first person to ask this in probably 200 or so interviews and meetings since June! The biggest one, the one that a lot of people are hoping for, particularly property developers, is that their competitors panic and fall by the wayside. Other positives? I think you could probably say that if we see Brexit-related price falls- You probably will see a post-Brexit recovery so again if you can buy at the bottom and sell at the top that’s always a positive.

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How long until the uncertainty is behind us?

Will it all happen by the next government? Yes, I think we will have left the EU by the next election, but we won’t have any clarity really about where we are in Europe, I think, by the next general election in 2020. It’s going to be a lot longer a process than many are hoping.

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