UK real estate is estimated to be worth a staggering £871 billion according to the British Property Federation. This value is equivalent to 10% of the UK’s net wealth, showing just how important this market is to the nation that has immersed itself in a risky situation. HMRC stated that 20% of the commercial real estate is sold every year; totalling £115 billion in 2015 alone — is this set to rise with Britain’s exit from the EU eminent?
Since the triggering of Article 50 and the negotiations commencing, uncertainty has risen amongst big business with no certainty over what life outside the EU will look like for the UK. There has been an unprecedented wave of financial institutions acquiring commercial real estate away from the financial centre of the world, London. This has resulted in the unimaginable becoming a reality for some giants within the financial services industry. A tide of pessimism has activated contingency plans, with offices looking to be secured in other major European cities.
Although a turbulent 2017 for the prospects of commercial real estate, Savills reported surprising news that total volume of commercial property transactions within Central London will surpass £20 billion by the end of 2017. The year also still has potential to break the £21.6 billion record set in 2014. UK Head of Capital Markets for JLL, Alistair Meadows, said such strong performance in the face of continued political upheaval and economic uncertainty demonstrates a long-term investor commitment and confidence in the UK real estate market.”
The figures speak for themselves but when put into context, they are not as impressive as initially thought. Robbie Duncan of Numis Securities, said, “However, it’s important to note that sales of two big buildings [the Cheesegrater and the Walkie Talkie] make up a huge chunk of that investment.” Analysts within Jeffries quoted that British real estate investment trusts are at a 30% discount to their booked net asset value when traded.
Brexit has become the poster child of geopolitical events within Europe since the global financial crisis of 2008. A great volume of noise has been produced due to the urgency in finding avenues to shelter from the incoming storm. Germany and France have attracted enormous interest from commercial investors across all ends of the financial services spectrum. The likes of Goldman Sachs and Bank of America have already set up operations in newly acquired office spaces in Frankfurt and Paris respectively, with images being released of what each entail. Bloomberg reported that 50 banks have already discussed relocation plans from London, with notable institutes such as JPMorgan Chase, Citigroup, and Deutsche Bank actively searching additional office spaces.
A crash in the market ensued due to the political consequences that are manifesting from the crisis within Catalonia’s bid for independence on 27th October 2017. Such shockwaves have negatively affected real estate prices dramatically over the past month within Barcelona, creating a proposition for those financial institutes looking for a quick deal to be made. The opening up of a cheaper option to act as a safe haven for financial operations may be a dark horse for investors looking for a quick and attractive getaway from London.
The current environment has left an air of uncertainty lingering around us; the real estate sector on the whole needs clarity over the transition deals taking place for Brexit. Transparency is key to mustering and maintaining high levels of investment in the capital, otherwise, a chain reaction of capital flight looks like a certain probability.