There is cause for optimism if we prioritise access to single market

There are no omens of imminent recession: the IMF is predicting positive UK growth through 2017 and the Bank of England is making encouraging noises.

ONS data on the labour market for March to May - the first three months of the Brexit campaign - showed the jobless rate falling to its lowest in more than a decade.

At the time of writing, the FTSE 100, AIM 100 and FTSE 350 are all trading above pre-Brexit levels. The FTSE 250 is gradually recovering.

In the property sector, there are also positive signs. The open-ended funds appear to have managed the initial retail sell-off well and are now reducing the discount to net asset value offered to outgoing investors.

REIT stocks are gradually clawing back some of their losses, and there is evidence, albeit limited, of transactional activity in the investment market. Once the summer lull is over, there is expectation of a busy final quarter.

With hindsight, a muted reaction to the vote is perhaps not surprising. Political uncertainty was limited by a swift change of leadership.

The Bank of England did a good job in calming the markets and, in my opinion, was right not to reduce rates further in a knee-jerk reaction. Looking forward, weaker sterling will help boost exports to temper any slowdown. In the banking sector, lenders’ balance sheets are incomparably better capitalised than in 2008; thus any impact should be contained.

Battle-hardened sector

For commercial property, the compression in bond yields has led to a historically high spread between property yields and 10-year gilts (upwards of 3.5%, depending on asset class), making the sector look all the more attractive.

The reduction in interest rates has made borrowing cheaper, even accounting for an increase to bank margins from scarcer liquidity. And most importantly, there is a substantial weight of capital looking for real estate product. The sector is also battle-hardened and stoical. Having weathered 2008 and the eurozone crisis, many see this as an opportunity.

There are several qualifications to this optimism, however. Firstly, we still have limited economic data on the post-23 June landscape. August will see the release of the UK house price index, labour market statistics, GDP estimates and producer price inflation figures for June.

The latter will give an early indication of how inflationary weaker sterling might prove to be. Only once we have clearer data can any slowdown in investment activity and corporate/consumer sentiment be properly gauged.

Secondly, and as some seem to overlook, Brexit has not actually occurred yet. We are still in the queue for passport control. As we go into exit negotiations, focus should turn to securing the least restricted access to the single market. If we fetter that access, the downside could be damaging.

Under a ‘full Brexit’ scenario, with significantly diluted passporting rights, Green Street Advisors projects a reduction of around 4% to central London’s workforce - some 75,000 jobs.

To put that in context, the global financial crisis saw around a 3% reduction. According to Green Street, if these jobs move to the eurozone, around 10m sq ft of occupied office space would shift to other cities.

That said, there are arguments against a mass exodus from London. You question how feasible it would be for corporate occupiers to shift the bulk of their operations, particularly front-office roles, into continental European cities where there are smaller workforces and limited stocks of good-quality office space, particularly when those markets themselves remain in politically uncertain environments.

A lot will depend on how Europe itself reacts over the coming months and years. An Italian banking crisis, exit referendums in other EU countries, a political resurgence of the far right - all would help persuade occupiers that London is the best and safest bet.

We are still in the first dawn of Brexit times, and the real effects of the vote could take many years to reveal themselves, but for now, and as long as we prioritise access to the single market, there is cause for optimism about the UK outside the EU.

Richard Craddock is a director at Wells Fargo Commercial Real Estate UK