The good weather and Rio Olympic and Paralympic Games distracted the market over the summer break from the shock of the EU referendum result.
Economic commentators re-forecasted their re-forecasts and the news got better, with the consensus view being that the UK will avoid recession, albeit with fairly anaemic GDP growth.
From a long-term investor point of view, the UK markets continue to look attractive, accentuated by the sterling devaluation and some price discounts meaning entry prices appear some 15% to 20% cheaper than before the referendum.
Prime commercial investment yields ranging between 3% and 6% compare very well against bond yields even in ‘emerging markets’, where the range is 2% to 6%. The recent interest-rate reduction and Bank of England intervention has made the arbitrage even more attractive, with debt rates at their lowest-ever level.
UK markets still compare very well with Europe, even with Brexit uncertainty - Mark Ridley, Savills UK & Europe
Not surprisingly, there has been a significant increase in interest from international investors linked to the US dollar and there is plenty of equity available to acquire assets at discounted levels. Despite the uncertainty surrounding future trading relationships with the EU, UK real estate has a very compelling story, with markets generally in balance between development supply and occupier demand.
Where else can investors get assets with more long-dated income due to the UK traditional lease structure?
I spend a lot of time travelling across Europe and the UK markets still compare very well, even with Brexit uncertainty.
On the flip side, there has been a more subdued response from sterling-denominated investors and UK institutions. Investment volumes in the UK were already falling prior to the referendum and this year may only be two-thirds what they were in 2015.
I do not anticipate a significant increase until the market gains more confidence about what the ‘post-Brexit’ world might look like.
However, the rhetoric between whether we have a hard and soft Brexit can be as damaging as the market shock of the decision itself, so it is important that the government keeps the bluff and counter-bluff contained within the cabinet.
At the end of the day, it is all about the occupier markets and nationally most occupiers have got on with their daily business and acquired space with needs-based decisions. Indeed, office take-up in major provincial cities such as Manchester, Birmingham and Bristol has continued pretty much undaunted and demand for the sector has also remained extremely strong.
Overall office take-up in the UK regions for H1 2016 was 4.7m sq ft, which encouragingly is in line with the record first-half figure achieved in H1 2015.
Even in central London offices, where one might expect to see the greatest impact, many submarkets remain active, although uncertainty within the financial sector around ‘passporting’ and access to the single market will continue to subdue take-up in the near term. Other sectors that are nervous of future market access include science and technology, biomed and education.
Retailers too, while very location specific, are continuing to go about their business and it seems that neither new entrants nor consumers have gone into a recessionary mode.
Residential markets have fared better than anticipated. National demand remains good and pricing robust and why wouldn’t it? Many of those markets were pro-Brexit so feel positive about the future.
Within central London, there is more of a mixed picture but some of these market segments had already were already impacted by stamp duty increases and the outcome of the referendum was just one factor among many affecting them. Encouragingly, the number of new applicants is up year on year, with London viewings up in August by 26% - some due to international demand.
So are we out of the woods? Not yet. Occupier and consumer demand will be key. It is also vital that the government negotiates our new relationship with the EU in a constructive manner.
It is also vital that the government negotiates our new relationship with the EU in a constructive manner. At the end of the day, there are 500 million consumers in this market who we can’t ignore and while trade talks with Australia and Korea are encouraging, they will not replace the relationship with our nearest market place.
I am optimistic that Brexit will be neither hard nor soft but perfectly cooked - but it definitely should not be scrambled by government policy decisions.
Mark Ridley is chief executive of Savills UK & Europe