The UK property market will now enter a “prolonged period of uncertainty” following the country’s historic Brexit vote, industry leaders have warned.
Voters in the EU referendum sensationally backed leaving the EU in yesterday’s referendum, with 52% of the public voting to quit and 48% voting to stay in. Prime minister David Cameron subsequently resigned.
The industry will be in shock this morning – below is a round-up of the reaction so far.
Ezra Nahome, chief executive of Lambert Smith Hampton
“Today’s announcement is not what a lot of investors and developers will have wanted. However, while it’s true that investors dislike uncertainty – just look at how quiet the last few months have been - history tells us that changing markets provide opportunity.
“As politicians figure out what the consequences are, the lack of an obvious market consensus in the short term presents opportunities for those who know where to look. We saw it during the financial crisis a few years ago, when smart investors spotted undervalued assets and then benefited from strong returns as the rest of the market caught up.
“For anyone looking to take advantage of the opportunities that Brexit will inevitably present, I’d encourage you not to skimp on good due diligence or local market insight. Knowing your market will be more important than ever.”
Chris Ireland, JLL UK chief executive
“Even if it is effectively ‘business as usual’ for the UK in terms of trade and legislation until 2018, such a major change will inevitably create uncertainty in the economy and real estate markets. 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. 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.
Melanie Leech, chief executive of the British Property Federation
“We now face a prolonged period of uncertainty as the UK negotiates how to leave the Union whilst maintaining relationships with member states.
“For the real estate industry, key concerns are going to be the construction sector, which is likely to be affected by changes made to the free movement of people and its impact on the skills gap, and how trade and investment might be affected.
“Financial markets are always unpredictable, but as an immediate response we may well see a slide in the value of the pound and a fall in equity markets that would affect listed real estate companies.
“At the same time, we may see a short-term ‘bounceback’ in transaction volumes, as those who have been waiting until the Referendum is over make their move. A fall in the value of the pound may also result in an increase in opportunistic overseas investment in UK real estate, as it will be cheaper for overseas investors.
John Forrester, EMEA chief executive of Cushman & Wakefield
“The property sector has probably followed the EU referendum more closely than any other industry and has witnessed the impact of the uncertainty and speculation in the run up to the vote.
“While the decision of the UK electorate is now confirmed, a period of further uncertainty is unavoidable as businesses, the financial markets and the political establishment in the UK, Europe and globally come to terms with what this means.
“Clearly the impact of this decision will be felt beyond the UK’s shores as the UK is the EU’s third largest market by population. We are therefore entering a period of unprecedented change as markets and sectors adapt. What is clear is that in any scenario there will always be opportunities and those will become clear in the weeks and months ahead.”
Gerry Hughes, chief executive of Bilfinger GVA
“The decision of the electorate to leave the European Union presents a significant market challenge.
“What is certain in the short term is that we will see a negative impact on trade volumes, foreign direct investment levels, exchange rates and borrowing costs. It is vital therefore that Government moves decisively to set out how the UK navigates through this new economic landscape, and so allows us to reach a more certain and stable outlook in the medium to long term.”
Russell Gardner, EY’s UK head of real estate
“Although the consensus so far has been that real estate investors will opt for a quiet summer to allow time for the result to sink in before they press ahead with their plans, the opposite is more likely. A falling pound may make the UK real estate market attractive to international investors who are expected to be bargain hunting in the UK. Domestic investors, on the other hand, will probably choose to hold on to their assets until the pound regains some ground.”
Jose Valente, head of European real estate research, JP Morgan Asset Management – Global Real Assets
“The UK attracts far more than its fair share of real estate investment capital for a whole manner of different reasons – transparency, liquidity, relative stability, rule of law, investor friendliness – none of which are challenged by a possible exit.
“All that said, increased volatility will be reflected in a rise of risk aversion. This will impact on pricing in the short term and create an opportunity for real estate investors, particularly as pricing could be expected to become more supportive of opportunistic strategies across both the UK as well as within the EU.”
Tony Horrell, UK chief executive for Colliers International
“Today, it’s far too early to know many of the possible effects and indeed the changing political landscape of the next few months will bring new issues to the fore.
“This is a result that will create a period of political, economic and financial volatility, all of which is likely to conspire to moderate real estate activity. Of course, we should not forget the UK’s significant real estate market, our appeal to international capital and our strong position in the global economy.”
Craig Hughes, UK real estate leader at PwC
“Real estate is a capital intensive business and real estate investors do not react well to uncertainty. In recent months we have seen the impact of this uncertainty on the real estate market.
“Over the coming weeks and months, we will be helping our clients gain a better understanding of the likely scenarios arising from the referendum result for the UK to leave the EU. This includes not only the immediate consequences for their operations resulting from exiting the EU, but also the longer term uncertainties arising from political uncertainty, the timing of the submission of Article 50 and the reaction of European officials and citizens.”
Scott Tyler, senior partner at Allsop
“We have not been here before, so nobody really knows what is going to happen. Huge uncertainty will prevail, which is never really good news for business and real estate. That said, opportunities will be created with the fall in Sterling, creating enormous potential for US, Far Eastern and Middle Eastern investors. It could be the opportunity of a life time for them to invest in UK real estate.”
Andy Pyle, UK head of real estate at KPMG
“We have seen a significant slow-down in the volume of transactions in the run up to the referendum and it’s likely that will continue. This is consistent with what international investors told us when we surveyed them in March*, but the majority also told us they expected to continue to invest in the UK going forward, regardless of whether the UK left the EU.
“Should sterling go into tailspin in the next few days, weeks and months, international investors playing the long game are more likely to jump on what could be a once in a lifetime chance to get hold of ‘cheap’ property.”
Miles Gibson, head of UK research at CBRE
“In the near term, CBRE expects some hesitancy among occupiers about space decisions. We expect international occupiers will wait to hear more about whether arrangements might be put in place which give the UK continued access to the EU markets. Any increase in property yields may be temporary, because the inherent attractiveness of the UK market, including its transparency, political stability and market liquidity, will provide long term support for prices.”
Rob Thompson, head of real estate London at Irwin Mitchell
“Britain’s decision to leave the EU is monumental. The almost universal consensus of economists and property professionals is that leaving Europe will have an effect on transactional activity levels in the UK property market, at least in the short term.
“Overseas investor and developer confidence in the residential sector will also be affected and Brexit is likely to slow, if not stall, investment in new housing development and will probably disrupt the inflow of labour and materials to the UK.
“Many though are more optimistic and predict that, after a short term dip, the UK property market will thrive as trade is boosted due to the removal of import tariffs and the dumping of regulations. Opportunistic investors will no doubt look to take advantage of uncertain market conditions to extract greater value on acquisitions.
“All is not doom and gloom - the English legal system and the transparency of the UK property market will continue to be the envy of the world and it is difficult to see why international capital will not continue to find its way into the UK property market after an initial period of reflection and evaluation.”
Neil Williams, group chief economist, Hermes Investment Management
“Eyebrows are being raised across the City of London. The UK’s vote to ‘leave’ provides a massive ‘curve ball’ for financial markets, which now need time to assess the policy path that a likely, new political line-up will eventually choose to go down.
“Equities and the pound may remain vulnerable given the likely hit to UK growth, and risk now of weaker ties with our main trading partner, FDI foregone, and a diluted relationship with the US and other third parties that use the UK to access the single ,arket.
“The UK economy will of course ‘survive’, given its entrepreneurial flair, increasing focus on non-EU trade, and likely policy accommodation by the Bank of England and UK Treasury. However, getting to the next stage looks a long, drawn-out ‘can of worms’, leaving considerable uncertainty for UK assets and markets. The extent of this damage now rests on the manner of the exit.
The City of London has more than most to lose from Brexit, given its status as a global centre, gateway to the EU, and dominant force in clearing European financial markets. Given its strong starting point and comparative advantage, Brexit may not prove a complete ‘disaster’ for London - but it’s a risk we did not need.
Mark Bladon, Investec Structured Property Finance
“With the pound likely to continue to lose value over the next six months, coupled with a likely fall in real estate values, we anticipate renewed interest from sovereign wealth funds and private equity houses which will see new value and opportunities in our property market.
“From a domestic lender’s perspective, we expect high-street lenders to reassess their lending terms considering how funding costs adjust in the medium to long term. This will also create opportunities for specialist banks that are able to react quickly to the new status quo. We have been working on a number of deals, across several use classes, ranging from student accommodation to residential development, which we expect to take forward now that a decision has been made.
“The UK is the world’s fifth largest economy, with London recently named the world’s top financial capital; this pre-eminence is a result of centuries of growth and prosperity. London and the UK’s advantages over other large financial centres are numerous but the main ones include the favourable time zone, strong rule of law, common language of business, as well as a much-envied regulatory environment; none of this is going to change as a result of today’s vote.”
Alan Brookes, UK chief executive officer of Arcadis
“Brexit is a game-changer. The challenge for the construction industry is not simply to respond to Brexit but, more importantly, respond to the opportunities that Brexit will bring.
“Construction markets are likely to become more volatile in the short term, and we need to consider a joined-up approach to sustaining the capacity and capability of the industry. Although demand is likely to fall in some sectors this could actually take some of the pressure off over-stretched markets. Ultimately the UK needs to keep building. Housing and infrastructure, for example, may now be able to secure capacity at a lower cost.
“One of the big questions we now face is: how can we ensure we have enough people with the right skills to build the houses, roads and rail lines of the future? In the future, European labour may no longer be the safety-valve it has been, so we must plan to use the workforce differently. Using more offsite components and investing in skills and the management of projects will now prove absolutely vital.”
Alan Tripp, head of UK, LaSalle Investment Management
“Whilst we view the long term impact of Brexit as being broadly neutral we expect markets to overreact in the short term. Early capital market signals seem to indicate that this may well be the case and real estate performance objectives may now come under considerable strain in the next 12 to 24 months.
“However, we have been working closely with our clients, adopting a balanced approach on risk, to streamline their real estate portfolios at this maturing stage of the cycle.”
Patrick Flaherty, chief Eexecutive, UK & Ireland, Aecom
“As the country faces a period of change and uncertainty, business must play a stabilising role. A positive, long-term focus on the future is required despite a referendum result that we and many businesses did not want.
“No nation has ever left the EU, so the long-term impact cannot be accurately forecast at this time. These are unchartered waters made even more uncertain by the Prime Minister’s announced resignation and the leadership election that will follow. As a country we must navigate wisely. Business must support government as it leads the country through this period of change.
“Business inevitably now faces a period of disruption. At AECOM, we have demonstrated our ability to grow while dealing with change and we will work hard to minimise the impact on our UK operations. As a global company, we serve clients all over the world from our offices in the UK. Our strong team, diversification strategy and international outlook equip us with long-term resilience but we are well aware that many businesses are not so fortunate.
“It is critical that the domestic agenda is not sidelined as the UK faces a minimum of two years of negotiations to leave the EU. Focus must remain on energy security and energy independence, as well as progressing the UK’s ambitious infrastructure pipeline. Schemes such as HS2, Crossrail 2 and the Northern Powerhouse programme are vital to the country’s ability to compete on a global stage, which is more crucial than ever due to this referendum result.”
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