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Not invited to the party

ne_2209162Richard Pickering, Head of UK Research & Insight gives a personal view of the business and role of property in ‘New Europe’ , his weekly email update.

Not invited EU leaders have met for the first time without the UK in 43 years, to address what Angela Merkel has described as ‘a critical situation’. If last month’s meeting in Ventotene was a moment of defiance, the mood in Bratislava was one of concern. Britain of course remains a member of the EU, and as yet has done nothing to formalise its intent to leave. Therefore, our exclusion from this conference can only be justified in that the meeting was described as ‘informal’. With the UK out of the picture, there are some that believe decisions will now be made more quickly. However, it is becoming clear that for the EU there is no shaking off the issues that the Brexit vote has highlighted, albeit of which Brexit was not root cause.

No comparison When looking backwards in the search for economic precedents that might help us navigate the path forwards, the lazy eye lands on the global financial crisis (GFC). As economic data emerges post-vote the differences are stark. During the GFC the UK economy shrank by 6.3% in real terms over just five quarters. Current projections are for slow positive growth going forward. Similarly, during the GFC, commercial property values fell by an average of c. 40%.The recent IPD release shows a c. 2% y-o-y fall measured in the past two months, with other trackers, including our own, showing a smaller reduction in pricing. It’s early days, but surely unhelpful to compare one of the great global recessions with a UK political problem?

Half way open Henderson became the latest investment manager to announce its intention to reopen its UK property fund. The UK Property PAIF and Feeder funds are valued at c. £3.4bn, making this the biggest reopening since the round of suspensions in July. The majority of sales which have led to the proposed reopening on 14 October are stated to have exceeded the 31 December 2015 valuations. IPD All Property pricing movement for H1 was 0.1%, indicating therefore that little value has been sacrificed. Following the reopening of these funds, about 50% of the £18bn that was originally suspended by the seven fund managers will remain so.

Inbound and outbound The Treasury Select Committee has published a letter from the FCA regarding the number of UK-authorised firms that currently hold single market passports. The passports, which would be at risk in the event that the UK leaves the single market, number 336,421 ‘outbound’ (for 5,476 UK firms to trade with the EU) and 23,532 ‘inbound’ (allowing 8,008 EU companies to trade with the UK). This starts to indicate the scale of the potential impact on the City, but equally hints at the potential balance of damage to EU firms caused by unwinding these rights.

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Richard Pickering, Head of UK Research & Insight

Richard Pickering, Head of UK Research & Insight.

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