Last Updated on 29.9.16 by Colin Mellor
For the past few years the commercial property arena has been blossoming after it experienced a bout of dieback during the recession of 2007. Those investing in property over the past three years have seen their finances thrive due to the short supply of space coupled with high demand from businesses. Statistics show over the past five years, real estate value has increased yearly by 11%. Now however, following the historically vote to leave the EU, the commercial property market is set to go through another uncertain period.
Investor feeling has certainly taken a tumble running up to and immediately after the ‘Brexit’ vote, which has been exacerbated following the UK construction outlook survey for June, the bleakest since 2009. Alongside this, a number of UK real estate funds, seven to date, have suspended their trading to protect investors and avoid quick fire asset sales. It has come to light that prior to the vote, the financial policy committee warned the Bank of England that commercial property funds may be suspended because of the rate of withdrawals sparked by the vote.
What’s the future looking like?
As we know, uncertainty in any market is not positive feeding ground for investors who will protect themselves at all times.
Bank of England Governor Mark Carney has done a good job so far in reassuring the markets and investors alike that the Bank have a plan (at least someone has!). He commented that the financial institutions and property funds are in a much better position to deal with any negative impacts due to greater cash levels and lower leverage levels than the marketplace in 2007.
The thriving market in the past three years has meant that many investors have made large returns; however this is now set to slowdown as was predicted pre-2016. The slightly more worrying assertion is that overseas investors, who pump a lot of money in to places such as London, will be put off pouring any more cash in to the capital until the financial future following Brexit is cleared up further. For plucky investors, it may be a great time to buy when prices are low to make more favourable returns.
With a drop-off in the market already predicted at the end of 2015, it seems that Brexit may have speeded this process up and completed this self-fulfilling prophecy. With confidence dwindling and a number of large retailers (BHS and Austin Reed) suffering fatal health problems, it could be a bumpy road ahead – already UK real estate companies have suffered from a 15% drop in share prices.
Commercial Property at Gorvins
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Consultant, Commercial Property