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Making Sense of Brexit: What Happens to UK Property Markets After the Vote?

Making Sense of Brexit: What Happens to UK Property Markets After the Vote?


With the Brexit vote is complete, and the divorce proceedings of the UK from the European Union is now afoot, with considerable uncertainty and no real precedent, the future implications for UK's property markets are significant.
 
JLL UK CEO Chris Ireland tells World Property Journal, "Even if it is effectively 'business as usual' for the UK in terms of trade and legislation until 2018, such a major change will inevitably create uncertainty in the economy and real estate markets."
 
Ireland further commented, "In the event of a well managed exit these impacts will be largely confined to the UK. "In the short term we may see a weakening in occupier demand. The impact on rents may be limited by tight supply, but activity will be adversely hit while initial uncertainty about direction and timing continues. Investor sentiment may also remain subdued in the short to medium term. For property markets, the initial correction may be most severe but should be followed by an upturn as opportunities re-emerge in UK core markets and benefits of weak sterling are recognized. Sentiment and relative pricing will be key."
 
"Much will depend on the speed of negotiation, the wider political picture and whether a clear direction of travel and timetable for an EU exit is established early on", concluded Ireland.
 
The following is a summary of JLL's view of the Brexit vote on UK commercial property markets:
 
  • Occupier demand will weaken in line with economic growth and declining business sentiment. The impact on rents may be limited by tight supply, but activity will be adversely hit.
  • Investor sentiment will deteriorate further subduing capital flows in the short to medium term.
  • There is likely to be a negative capital value adjustment over next 2 years (estimated at up to - 10% with yields moving around 50bp). London sectors remain most vulnerable to correction given current keen pricing and their multinational occupier base.
  • The residential market is expected to cool despite lower interest rates, but any correction will be mild, aside prime London values, which are significantly more exposed
  • For property markets, the initial correction may be most severe and followed by an upturn as opportunities re-emerge in UK core markets and benefits of weak sterling are recognized. Sentiment and relative pricing will be key.
  • Much will depend on the speed of negotiation, the wider political picture and whether a clear and favorable direction of travel is established early on.

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