Tag Archives: economy
UK commercial property market could see short term weakening due to Brexit
The UK commercial property market is likely to see a weakening in demand due to the decision of the British people to leave the European Union. Foreign investors in particular are likely to cool while the terms for the country to leave are thrashed out as uncertainty about direction and timing affect decision making, according to experts. Even if it is effectively ‘business as usual’ for the UK in terms of trade and legislation until 2018 when the actual exit is likely to take place, such a major change will inevitably create uncertainty in the economy and real estate markets, according to Chris Ireland, chief executive officer of JLL UK. He explained that in the event of a well-managed exit these impacts will be largely confined to the UK. ‘In the short term we may see a weakening in occupier demand. The impact on rents may be limited by tight supply, but activity will be adversely hit while initial uncertainty about direction and timing continues,’ said Ireland. ‘Investor sentiment may also remain subdued in the short to medium term. For property markets, the initial correction may be most severe but should be followed by an upturn as opportunities re-emerge in UK core markets and benefits of weak sterling are recognised. Sentiment and relative pricing will be key,’ he pointed out. ‘Much will depend on the speed of negotiation, the wider political picture and whether a clear direction of travel and timetable for an EU exit is established early on,’ he added. According to an analysis by JLL occupier demand will weaken in line with economic growth and declining business sentiment. The impact on rents may be limited by tight supply, but activity will be adversely hit. It also suggests that investor sentiment will deteriorate further, subduing capital flows in the short to medium term and there is likely to be a negative capital value adjustment over the next two years, estimated at a fall of up to 10% with yields moving around 50bp. It points out that London sectors remain most vulnerable to correction given current keen pricing and their multinational occupier base but much will depend on the speed of negotiation, the wider political picture and whether a clear and favourable direction is established early on. According to Mark Clacy-Jones of international real estate firm Knight Frank the decision will cause volatility across all investment markets, and real estate will be no exception and he predicts that uncertainty over future economic conditions in the UK will cause some deals on hold to be shelved, and occupiers will reconsider the amount of space they need outside of the single market. ‘A fall in the value of sterling, combined with falling property values will be a buy sign for opportunistic overseas investors once the initial correction has occurred. This will cause a widening yield gap as real estate yields rise and bond rates fall from further Bank of England monetary loosening and will make property… Continue reading
Prime property market in London set to be affected most by Brexit
The prime property market in London is likely to be the affected the most by the referendum results in the UK which will see the country leave the European Union. Sales activity and price growth in the prime London residential market have already both slowed since the middle of 2014 and in the run up to the historic vote many commentators and experts were predicting that a vote to leave would affect London the most. ‘There is no doubt that the vote in favour of Brexit will generate a period of renewed uncertainty in the prime London residential market. Some demand, especially from investors, will be delayed and in some cases redirected to other markets although the significance of these trends should not be overstated,’ said Liam Bailey of international real estate firm Knight Frank. He explained that demand for prime London property rests on a wide range of drivers most of which are unaffected by the referendum decision such as the scale of London’s business cluster, depth of skills, education, lifestyle and language. ‘It is not easy to identify an obvious alternative destination for investors despite short term nervousness. On the eve of the vote the pound sat 14% below its mid-2014 peak meaning pricing in the prime market was more attractive for dollar buyers. While a further weakening of the pound could increase inward investment, this impact will be constrained by the fact that around 80% of central London buyers are UK residents,’ he pointed out. ‘It seems a reasonable assumption to make that interest rates will be lower for longer, despite the risk of imported inflation from a weaker pound. While the long term benefit of ultra-low interest rates on the housing market may be questionable, in the short term they will act to underpin demand especially for equity rich buyers with access to the best funding rates,’ he added. Bailey also believes that the prime country house market will be similarly impacted by the result. ‘However while the market has performed relatively well over recent years, following a slow recovery immediately after the financial crisis, prices have not tracked London to date and there is scope for some outperformance in the short to medium term,’ he said. ‘While we are entering a period of renewed uncertainty in the UK and London market, ongoing issues around EU and especially Eurozone stability, which will be highlighted in the run up to French and German elections, are likely to counter this risk and shore-up London’s safe haven appeal,’ he concluded. The decision to leave has opened up a Pandora’s Box as far as the London property market is concerned and for overseas buyers, this big and dramatic drop in the value of Sterling will effectively offset the Stamp Duty and tax adjustments and it will make prime London property a lucrative investment for overseas investors bold enough to make a decision to buy despite the market uncertainty, according to Peter Wetherell, chief… Continue reading
Average rents in England and Wales fall by 0.2% month on month
Average rents for homes to let across England and Wales fell 0.2% in May month on month and now stand at £792 per month, according to the latest index data. This compares to a long term average monthly rise of 0.4% over every May since the recession but they are still up 1.8% over the last 12 months, the data from the buy to let index from Your Move and Reeds Rains shows. However, on an annual basis rents have seen half the annual rate of rental growth seen at the start of 2016, when in January this stood previously at 3.6%. According to Adrian Gill, director of lettings agents Your Move and Reeds Rains, the number of properties to let coming on the rental market has disrupted the normal dynamics of supply and demand. ‘Landlords escaping a much larger stamp duty bill by completing their purchases before 1st April have now finished their repairs and paperwork, with these homes to let competing for tenants in May and into June. That short term mismatch has made May an exceptional month, with excellent deals available for some prospective tenants,’ he explained. He believes that overall the tax changes to the buy-to-let industry will discourage some property investors, and most of the properties that became available to let in May will have been planned purchases brought forward from later in the year. ‘The net effect will not be more properties to let, quite the opposite. If new regulations and taxes produce a drought of homes to let, then the overall shortage of housing in the UK will only bite harder for tenants. Meanwhile, this heightened shortage and possibly higher rents as a result could also protect landlords somewhat from the financial effects of more punitive rules and regulations,’ Gill pointed out. A breakdown of the figures show that rent rises in London have slowed to just 1.0% over the year to May 2016. This compares to a peak seen in September 2015 when rents in London were 11.6% higher than a year before at the time. By contrast, the East Midlands have witnessed rent rises of 7.3% over the year, followed by the West Midlands with 5.5% annual rent rises and the East of England with 3.6%. All 10 regions of England and Wales have seen rents in May higher than a year ago. However the joint slowest annual rent rises have been in Wales and the South East, both seeing rents rise just 0.5% over the last 12 months. London also leads the negative trend on a monthly basis with average rents in the capital falling 0.7% between April and May, a faster drop compared to a more modest drop of 0.2% in the month before. London is followed by the East Midlands where rents are 0.6% lower than a month ago and Yorkshire and the… Continue reading
