The UK Property Market Showing Strength Despite Brexit

The UK property market has for several years been dependent on foreign investors and this is not going to change even given Britain’s proposed exit from the European Union. As such, there are genuine fears that the post-Brexit effects could be higher within the next couple of years as compared to the period leading to the vote.

The real estate market in the UK and especially the British capital will be tested and companies such as Derwent London, Hammerson and Great Portland Estates could see some significant shifts in residential property and office sales going forward.

On June 23, 2016, British citizens went to a referendum and voted to exit the European Union. At the time, the GBP was the most illustrative barometer of what it could mean for the UK financial sector. Since slumping to a 31-year low against major currencies, the pound has failed to recover fully. Property values were also affected but two months later (after Brexit) prices went up 0.6%.

According to a report by British Land’s property, occupancy numbers fell during the last quarter of 2016. However, the report further indicated that demand showed promising results even with the uncertainty of the country’s future economy.

Since the housing market relies mostly on foreign capital, the subsequent withdrawal of international investors could add a lag to the pre-existing challenges such as demographics and a shortage of construction.

The higher cost of capital is seen as one of the biggest challenges experienced by domestic investors hence why the greatest capital inflow remains linked to foreign markets.

Information sourced from Knight Frank’s London report showed that in 2016, the London office market drew £9.3 billion of foreign investment making it the industry leader on office and real estate buyers.

Whilst it’s confirmed that £9.3bn was subject to London office market growth drawn from foreign capital, a new analysis indicates that the market could still do well even after Brexit.

Of the £9.3bn, 80% is reported to have come from outside Europe with China and Hong Kong listed as the biggest sources. The two markets accounted for £2.9bn, which was 60% more than the total capital drawn from the European market.

The London property market is steady even after the referendum according to Knight Frank and the need to shift focus to a wider world of buyers and investment capital remains paramount.

Domestic corporations have not fared well over the last two years. In every ten of the largest occupier deals, seven went to overseas corporations mostly in North America.

Since the post-Brexit pound decline, the range of buyers has been widened to international markets and thus limiting the EU as the biggest contributor of funds.

According to Stephen Clifton, head of central London Offices at Knight Frank, overall London’s long-term growth remains unchanged and unaffected by Brexit.

Clifton said that by extending the crowded CBD, London could “Become a city of 10 million people.” Districts already under development such as Stratford, Nine Elms, Waterloo, White City, London Bridge Quarter, Canary Wharf and Canada Water – could become the solution to an issue that has long affected, ‘the hub of Commonwealth trade system,’ London.

With questions raised as to whether some of the post-Brexit predictions such as London financial jobs moving to Europe could come to pass, James Roberts, Knight Frank chief economist has laid such pressures to rest. He explained that previous figures have indicated that tech and creative firms had long been stable domestically since 2011.

The migration of London financial jobs to Europe would culminate in surplus space coming to the market. Tech and creative jobs have been the biggest clients for office space over the last five years in London.

Roberts further said that expansion of creative and technology industries in London at the current average growth rate over the next three years “would offset 15% fall in financial sector headcount.”

It is evident that tech firms are planning significant growth this year with companies such as Facebook pledging to raise job numbers in London by 50%. Some other big players that have recently closed on office deals include Apple at Battersea Power Station and Amazon at Principal Place.

Conclusion

In summary, the UK property market relies a lot on the success of the London housing and office market. The exit from the EU could cause a few ripples here-and-there, but as market analysts have noted, the impact might not be long-lasting.

In addition, with the likes of China still contributing to a great deal to the UK property market and Prime Minister Theresa May still hopeful of continuous trade relations with the EU, the future might be brighter than it looks.