How would the Commercial Property Sector Be Affected by Brexit?

Posted on 6 April, 2016 by Chris Grigorovsky

If the UK left the EU then London offices would suffer the most, according to Steven Grahame, manager of North Row Liquid Property fund.

Brexit

In a piece for What Investment, Grahame said that London offices would be impacted, seeing many continental European companies, in particular investment banks, retreat to the EU. This in turn would increase vacancy rates, while GDP slowdown would negatively impact rental growth. He says that the London office sector is already trading close to record low yields.

The retail sector, he believes, will be less affected by the change but slower growth and higher inflation would impact the pressure on consumer spending.

However, all is not lost, as he said that there “could well be large offsetting positive benefits from both a weaker currency, making UK property more attractive to foreign investors, and lower bond yields, which would make property yields look even more attractive on a relative basis.”

An example given was when the UK left the European Exchange Rate Mechanism in 1992, which saw property returns at nearly 20% and stocks had almost 50% by the end of 1993.

Although, property returns are “Likely to be very varied”, with low yielding finance-related offices likely to underperform, while industrial units which cater to export-orientated manufacturers should do much better.

He concludes: “We believe that the probability of Brexit is currently low, but on balance it would have a negative impact on the economy and commercial property. However, with a weaker currency and lower bond yields, pockets of value could well appear.”

When 23 June arrives will you be voting to leave or stay? Let us know in the comment section.




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