The UK investment market, and especially Central London is the cross border capital of the world. London attracts far more capital from outside the region than any other city globally. But will its dominance, liquidity and safe haven status be threatened by a possible Brexit?
To gauge reaction we surveyed the opinions of investors from outside of Europe with global CRE holdings in excess of $650bn, who are active across the UK and Europe. All those surveyed were fully aware of the impending referendum. Over half of those surveyed have said that Brexit has led them to pause investment in the UK. A further 20% have cited other broader market influences for placing activity on hold. Positively, more than a quarter are still seeking to buy assets.
This is certainly reflected in the activity we have seen to date. In the UK Q1 2016 volumes were 28% lower on Q1 2015 at £10.7bn. Non-European investment fell further by 36% in the same period. Central London volumes were also weaker especially in the City. With some decisions to sell on hold, supply is a limiting factor. Recent acquisitions by Asian and North American capital for lots in excess of £300m show demand remains firm.
In the event of an exit, over two thirds of investors said they would invest less in the UK, nearly a third (31%) said they would invest more. There is no rush to exit the UK. Just 12% said they would sell this year or next in the event of an exit. A further quarter said they may sell later. Over a third said they currently have no plans to sell with nearly 30% citing factors other than Brexit for selling.
The impact on the continent hangs in the balance. Just over half said they would invest more, implying a degree of uncertainty for Europe and perhaps concerns for a wider break-up of Europe. Overwhelmingly, close to three quarters said they would invest more outside of Europe. Whilst not all good news for Europe short term, real estate still retains its charms.
So the message is clear. The survey shows Brexit is leading to a slowing in the market, but a slowdown bolstered by a number of factors. With some investors seeking to increase their holdings and the prospect of the pound taking a further dive, these occurrences could increase the flow of more opportunistic dollar denominated capital. However, it is important to note that it would not derail the market. Volumes will be down, but definitely not out.
Nevertheless, the situation could be different. Recent polls show the ‘remain’ camp taking a lead and bookies providing odds of 70% for the UK to remain in the EU. A relief bounce could be on the cards leading to a frenzy of activity in the second half of the year.
A specialist in commercial real estate investment research, having graduated in Estate Management and a PhD in real estate Nigel Almond has worked for over fifteen years in commercial real estate in the private sector. As Head of Capital Markets Research at Cushman & Wakefield, Nigel manages a team of analysts in the delivery of strategic research covering investment markets across EMEA and also globally, including analysing the current and future flows of capital. Nigel has taken the lead in writing and presenting various flagship research products including Money into Property, the Great Wall of Money and Global Debt Funding Gap. He has presented research outputs at industry conferences including INREV, IPD and PERE and is a key spokesperson for Cushman & Wakefield research on both investment and debt capital markets and is regularly quoted in trades press and other media including the Financial Times.