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Author: Russell Price
Date: 22 November 2018
Brexit & Commercial Property - Am I safe to invest?
Despite the UK being a member of the European Union, the law surrounding real estate within the UK has on the whole remained a domestic affair. There has been minimal intervention by the EU with regards to property law, meaning that Brexit should have little effect on the way UK property is held or dealt with going forward.
That being said, discussions surrounding Brexit have unsettled the already futile commercial property landscape. When the UK political and financial market is relatively stable, rents rise and developers build more space to meet growing demand. However, should ripples begin to form, it is not long before vacant office spaces increase, development work slows and rents either stabilise or fall. Paul Crosbie, who manages M&G’s UK Enhanced Fund, said prices for riskier properties have fallen 15% since the Brexit referendum two years ago.
With so much uncertainty surrounding the Brexit discussions, it is feared the possible consequences for the UK property market would be a decline in investment as investors and companies favour alternative EU countries. It is feared that the UK property market would become less attractive, with prospective buyers being deterred from pursuing a sizeable investment during a time of political unease. However, any moves that have been made so far have been in the hundreds rather than thousands and the UK commercial property market has been left relatively unscathed.
One reason for this is that the drop in the value of the pound as a result of the referendum has meant that non-EU investors are looking at UK property more favourably. For example, the Cheesegrater building in London recently sold to Chinese developers for £1.15 billion – 26% more than it’s valuation.
But, for commercial property owners who are concerned about any consequences as a result of Brexit, alternative avenues such as utilising an investment trust may make good business sense going forward. If the market does begin to struggle, the fund will not have to sell properties in order to take money out.
This is because investment trusts have a fixed pool of capital and investors can sell their share in the capital if they want to withdraw their investment. This key feature allows the fund managers to take a more long-term approach to investing and to hold a portfolio that they believe can deliver despite short-term market difficulty.
The commercial property market is facing an uncertain period as Brexit unfolds, but it still has much to recommend it to long-term investors looking to spread their risks and find attractive returns.
Russell Price - Published 22nd November 2018
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