Two years on from the Brexit vote, its ramifications are far wider than many people imagined. A range of sectors continue to grapple with political uncertainty, with doubt over the Galileo project worrying the defense industry and concerns mounting in the NHS about its future labour supply.
London’s property market has also had worries to contend with. However, there was a sense of cautious optimism about the future at this year’s London Real Estate Forum (LREF). While it was hard to avoid ‘the B word’, there was a palpable feeling that the London market will be okay in the long run, and that it will continue to attract both inward and international investment. While the market has experienced short-term ups and downs in the past two years, there is a belief that its long-term prospects do not depend on the outcome of the Brexit talks.
There are a number of factors that will support the long-term performance of the London market which are not affected by the outcome of the referendum. London is home to more than 40 universities – many of which are world class – and international students from outside the EU will still flock to study in London. The market also remains popular with a huge range of global property investors, with Middle Eastern and east Asian buyers still particularly keen on London. Many of these buyers are attracted to London’s position at the center of the global economy, which looks unlikely to change anytime soon. While a final political solution still seems some way off, the overall picture in the UK is also much more stable than in many investors’ home countries.
Furthermore, slower price growth in the London market could actually support greater activity in the long-run. Lower prices coupled with weaker sterling significantly enhance the market’s value. In its latest data the ONS revealed that house prices in the capital grew by 1% over the year to April 2018, which is slower than many comparative investment destinations like Paris and Berlin. Many investors actually feel that this value is not going to be available forever, and that now is a good time to enter the market.
However, there are challenges to London’s dominance, and the sector should not get complacent. Research from Cluttons shows that although London was still the top location for Middle East investment (at 38%) this year, the proportion of investors looking at Manchester was higher than those looking at tier one London hotspots such as Chelsea. Similarly, many overseas investors are attracted to the strong returns on offer, with our latest Global Real Estate Outlook predicting a 28% increase in Manchester’s house prices between now and 2021.
While it might be a step too far to say that the London market is entirely Brexit-proof, there is a clear case for cautious optimism. While the market has had its ups and downs in recent years, it is hard to see its permanent allure subsiding anytime soon.