Property investors delay UK commercial deals on Brexit fears
Major international property investors are delaying purchases of UK real estate assets until after the referendum on the country’s membership of the EU.
While opinion polls so far suggest most UK voters want to remain in the EU, support for the Leave campaign is high enough for investors to view a British exit as a real possibility. The fear is that this could push down prices for commercial property, at least while the complex and protracted exit negotiations are taking place.
Pierre Vaquier, chief executive of the Real Assets division of Axa Investment Managers — an arm of the French insurer that manages €65bn in property and infrastructure assets — said his company was in “wait and hold” mode ahead of the vote.
A departure from the EU “will have an impact. The banks will be under pressure,” he said, citing comments by HSBC that it would shift about 1,000 jobs to Paris in the event of a British exit from the EU.
“There are questions over how a departure from the union would be executed,” he added. “Will [the EU] say, ‘fine, you are on your own’? This is unknown, uncharted territory.”
The possibility of “Brexit” hung over the property industry’s annual Mipim gathering in Cannes last week, where 23,500 European real estate professionals debated the potential impact of an Out vote on a UK market already coming off record highs.
UK economic data
Construction
Wilburn Street Basin apartment blocks under construction, from the Irwell riverside path, Salford, Manchester, UK
Construction accounts for about 6 per cent of the overall economy, but was very hard hit by the recession, contracting by 17 per cent from peak to trough, and still remains below its pre-downturn peak. After a period of growth, mainly driven by housebuilding, the sector has begun falling again.
Rob Wilkinson, chief executive of AEW Europe, which manages €18bn of property assets, said his company would probably make any deals signed between now and June conditional on the UK voting to remain. “Any transactions starting now [across the wider market] will find themselves holding their breath . . . if it’s Out then the deal may stop,” he said.
Another multibillion-euro investor, who declined to be named, said: “No one wants to feel stupid — to be the company that bought an asset and then there was a vote to leave the EU.”
UK trading volumes in the first two months of 2016 were similar to the previous year, said Neil Dovey, senior director at Bilfinger GVA, a firm of real estate advisers. But he added this might be “a little bit of hangover” from 2015.
“Some clients, particularly with overseas mandates, are looking to delay buying. After the Easter holidays we expect to see a decline in stock coming to the market,” he said. “Would you rather bring something to the market now or in the autumn?”
Mr Dovey added: “We are in line for an incredibly busy period after the vote if we stay in. If it goes the other way, there will be a much greater period of stagnation.”
Richard Divall, head of cross-border capital markets at the real estate advisers Colliers, said he was aware of a Chinese investor exchanging contracts on a UK property deal with a clause making its completion conditional on a vote to remain. “Referendum clauses are starting to enter the vocabulary of those cutting deals as a way to keep things moving,” he said.
Germany’s Union Investment said this month it had delayed the purchase of a City of London office building because of the risk of Britain voting to leave the EU. Competition for prime UK property assets has already fallen this year after prices for London offices reached record highs following two years of strong capital growth.
Pricing in core markets would slip in the event of a British exit, affected by the many uncertainties about the UK’s future, according to research by Colliers. It said there would be specific risks to occupier demand for buildings as businesses held off expanding in the aftermath of a vote to leave.
“Another key risk is related to the role that the UK plays in hosting businesses that use London as a platform to trade with the EU,” the report said. “London’s office market is potentially more vulnerable than UK regional markets.”