Often dubbed a safe haven for international property investment the UK has become something of a property hotspot in recent years.
UK commercial property has long been a popular investment among both British and international investors, offering steady, tax-efficient returns from financially stable tenants.
However, amid concerns that the UK may vote to leave the EU on 23 June, many international commercial property investors are putting their purchases on hold and expressing concerns about the impact of a leave vote.
But investors who believe the economic warnings over Brexit are overplayed – or who note the Remain campaign’s lead in the polls – might spot an opportunity to secure some prized assets while other investors prevaricate.
Pre-referendum nerves
In the first quarter of the year, sales of income-producing commercial properties fell by 28% to £10.7 billion, according to a study by Cushman & Wakefield.
The report also predicts that demand for UK commercial property will fall and the economy weaken if Britain decides to leave the EU.
But many of the landlords surveyed – who collectively own and manage £650 billion worth of property outside the EU – stated that they wouldn’t leave the UK immediately.
Nigel Almond, head of capital markets research at Cushman & Wakefield, said: “Investors won’t want to sell immediately and be seen as forced sellers. We are probably going to have a two-year period of negotiation over the terms of Brexit, so people will want to take stock and consider their approach.”
However, if the UK does choose to leave, the majority of investors polled said that they would look at regions outside of Europe for future acquisitions.
A report from the Royal Institute of Chartered Surveyors (RICS) also reveals an overall drop in UK commercial property investment, with international demand for office, industrial and retail property all falling since the referendum was announced following the General Election in May 2015.
The report, which surveyed RICS members across the UK in the first quarter of the year, found that nearly 40% were planning to reduce their investment in the UK ahead of the EU referendum.
In London alone 80% said the uncertainty surrounding Brexit was holding them back.
Plummeting demand from foreign investors was also evident with just 5% of RICS members reporting increased interest from overseas in comparison to 36% a year ago.
Contingency plans
According to RICS, some international businesses are drawing up contingency plans to move their headquarters in the event of a leave vote.
London Law firm Nabarro even told the Guardian that some commercial property investors are adding “Brexit clauses” into their contracts, allowing them to get a refund of their deposit and terminate deals in the event that the UK elects to leave the EU.
Senior partner Ciaran Carvalho said: “Brexit is a leap into the unknown […] Brexit clauses are a pragmatic, legal response to that uncertainty.”
Should the UK leave the EU the flight of even more foreign capital, which accounted for 45% of all UK commercial property transactions in 2015, could reduce property prices and have a significant and detrimental effect on the UK economy.
Some 43% of RICS members believe that Britain’s withdrawal from the EU will have a negative impact on the commercial property landscape, 6% predict it will have a positive impact, 38% expect little impact either way and 12% were unsure of the effect it would have.
In London alone, there wasn’t a single respondent who felt that Brexit would have a positive impact and 60% expected Brexit to have a negative impact.
RICS chief economist Simon Rubinsohn said: “There is no doubt that since the EU referendum became a certainty following the general election last May we have seen a decline in interest from overseas investors in UK commercial property. At least in the short term, we know that international retailer and service providers are finding the UK market less attractive.”
Spotting an opportunity
However, some private investors are bucking the trend and buying up London property while larger investors hold fire until the electorate delivers its verdict.
One example is UK-based multi-family office 3 Associates, which is planning to invest £500 million in property in London and on the M4 corridor this year.
Viewing the referendum run-up as an opportune time to invest Jesdev Saggar, managing director at 3 Associates, puts the firm’s recent investment success down to “the way Brexit is being publicised and the concerns around it.
“There are a lot more opportunities being presented to us. Some large funds are rebalancing in case the vote goes the other way and that means we can look at assets we would never typically have access to.”
He is confident about 3 Associates’ prospects no matter which way the vote swings. Even if the choice is to leave, “there will be a hiccup […] but I don’t think we’re going to fall into some kind of vortex of economic decline,” he told the Financial Times.
