“If for a moment, I thought the Brits were going to vote to leave the EU, I’d sell everything,” warned the boss of a major US private equity firm in the run-up to the EU referendum.
So far so bleak. But then, he said: “I’d then buy everything back again.”
In other words, Brexit is not Armageddon: markets will initially overreact and then bounce back. As it happens, his comments may turn out to be the wishful thinking of a private equity investor.
There are so many investors hunting for bargains that genuine bargains will be hard to come by - the predicted overreaction is not happening.
This is borne out by the deals struck this week. As we reveal, foreign buyers are snapping up a broad range of properties, from retail parks to City offices. The collapse in the value of the pound means it only takes a small chip to asking prices for well-let UK properties to appear sound investments in a world where interest rates from here to Japan are at record lows.
Even in the City office market, which is expected to bear the brunt of any fallout from the Brexit vote, eye-catching deals are still being done. Last week, we revealed two City deals worth £265m, including one at a yield of just 3.6%.
Amid all this cheerful news, there is an important caveat. Appetite for development and ‘refurbishment opportunities’ is undoubtedly on the wane. Stock market investors have worked this out. Five weeks on from the vote, shares in Walkie Talkie landlord Land Securities are down just 8%, whereas Helical, which is exposed to a lot more development risk, is down 30%.
So how fearful should we be? Will Brexit send banks fleeing? The initial signs suggest not. Foreign banks have made significant commitments to the UK since the vote. Wells Fargo signed off a £300m purchase of a new HQ in the City a fortnight ago and this week we reveal a firm owned by BNP Paribas has agreed to a new 50,000 sq ft lease at Clearbell’s Blenheim Court in Solihull.
This is encouraging, but if Brexit negotiations go badly and the City loses passporting rights, jobs will be sacrificed and demand for office space will fall. KKR’s co-founder Henry Kravis recently warned that 20% of London’s financial sector would leave the capital.
This sounds extreme, but a significant change is likely. Green Street Advisors is predicting a 4% drop in central London’s workforce and if those jobs migrate to the eurozone, that means 10m sq ft moving overseas.
This prospect is more real than we like to admit. Many of those who voted for Brexit did so expecting major changes to immigration policy. Surely it is over-optimistic to think this can be achieved and at the same time we will hold on to the same access to the single market we enjoy today.
- Property Week’s print edition is taking a summer break next week, but fear not: PropertyWeek.com will be in full swing with all the latest news, an Olympic legacy special and the latest updates on RESI 2016, which takes place 12-14 September at The Celtic Manor Resort in Wales.