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Brexit casts shadow over commercial property, but optimism rises

Amy Loddington -
25th September 2017
offices commercial building

29% of real estate professionals are now feeling 'optimistic' about UK real estate according the latest research from law firm CMS in its new research report 'UK Real Estate – Smart Healthy Agile'.

In last year’s survey, just before the Brexit vote, only 14% of respondents were feeling optimistic, so the sentiment has doubled in the last 12 months. In fact, 63% were pessimistic in 2016 versus just 23% now.
Research was conducted by FTI Consulting on behalf of CMS in July 2017 with 350 real estate investors, developers and agents, controlling combined assets of over £400bn.
Ciaran Carvalho, Head of Real Estate at CMS UK, said:

“Optimism about the commercial real estate market remains subdued but the level of pessimism has fallen dramatically and this perhaps indicates that in spite of an ongoing sense of uncertainty around Brexit, investors have recovered from the initial shock of the leave vote and have started to look to the future with greater confidence.

“The London market has continued to heat up notwithstanding Brexit, with over 70 per cent of professionals we polled believing it is overpriced. However, we have not seen the price correction that many domestic investors had hoped for. Transaction volumes in London have been steady over the past year with a string of high profile acquisitions and no sign yet of the exodus from the City that many predicted.”
CMS has been involved in real estate deals with Chinese investors with a cumulative value of more than £4bn over the past 12 months and international capital continues to buoy the UK market, with the depreciation in sterling after the EU referendum no doubt enticing global investors. Time zones, transparency of markets, and the respect for the rule of law in the UK remain factors attracting international investment.”
In London, 75% of all office transactions in Q1 2017 involved overseas buyers, and of those 90% were Chinese investors. So it is not surprising that 80% respondents believe Asian investment will continue to increase over the next two years, up from 66% last year. Capital from the Middle East (61%) is second in the poll, up 15% from last year.
With uncertainty surrounding the UK’s place in Europe, real estate professionals think Western European investment in UK real estate will continue to falter; this region is down by half from 22% to 11%.
Outside of London, Dublin (56%) and Frankfurt (45%) are the European cities which respondents felt were the most appealing as investment prospects in the next 12 months, with Berlin (38%) and Paris (36%) next in line.
Ciaran Carvalho, Head of Real Estate at CMS UK, continued:

“Brexit has raised the threat of certain companies moving all or part of their workforce into the Eurozone after the UK formally breaks its ties with Europe. The pressure is particularly acute in financial services. In light of this, many European cities are positioning themselves to benefit and whilst this is no time for complacency, so far there is still no real evidence that they are threatening London as a major international marketplace and an important global city.”

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