Commercial Watch: Adverse effects of Brexit ‘fairly negligible’

Jane Simpson TBMC 2016

As regular readers will know, my last piece provided some commentary on the UK market in light of various changes in areas such as SDLT and other taxation in relation to property investments.

My commentary below for this month should perhaps be read as a companion piece to the last article, looking more closely at some elements of the property market such as prices, yields and demand, and how these have fared both immediately following the referendum and more recently.

Immediately following the referendum some lower valuations, resultant increasing yields and a reduced number of investment transactions seen by many lenders and brokers perhaps suggested that the short-term impact of the result was widely felt across the entire commercial real estate industry.

Even during this period however many private investors and SMEs dealing with TBMC Commercial both made, and contributed to, the point that adverse effects have in reality been fairly negligible.

The overall value of commercial property investments recorded by Propertydata for Q3 was indeed around a third lower than in the same period in 2015, however HMRC records suggest the number of individual transactions was virtually the same as last year.

This picture of stable transaction volumes is supported by our own experience and observations suggesting this market was largely unaffected for smaller investors.

This continued popularity with smaller real estate investors perhaps reflects the yields often in evidence in that market with examples such as a retail unit selling at auction let to a well-known high street name for a further 15 years with a rental yield of almost 6%.

The Bank of England noted that commercial real estate transaction volumes in July and August were lower than any time since 2009, but the total for Q3 was higher than almost any quarter between 2008 and 2012, boosted by large numbers in September. It should be noted though that the September figures included some large portfolio transactions that might be considered by some as exceptional.

That said, the sharp rise in investment transactions in September does perhaps offer some suggestion of improvement, albeit the source of a substantial part of this market liquidity has on the face of it been larger global investors rather than domestic players. For the market to approach something like normal conditions, UK investors need to play a more significant role than has been the case in recent months.

To finish off on a positive note for 2016, there do remain a number of reasons for optimism here; recent commentary suggests almost all the UK commercial property funds which suspended activities due to numerous investors withdrawing funds following the Brexit vote, have now reopened; the latest at the time of writing being M&G who recently announced it would be resuming trading in its Property Portfolio due to its view on returning confidence to the market

The consensus appears to be that pension and life funds are also expected to return to the market in the coming months, perhaps largely driven by a desire for predictable income at levels apparently lacking in other investments. There has also been considerable investment activity by local authorities, who look to have invested large sums in commercial real estate during recent months, exceeding levels invested during 2015 in the last few months alone.

Jane Simpson is managing director at TBMC