Making Sense of Brexit: What Will Happen to the Property Markets in the United Kingdom After the Vote?

With the Brexit vote completed and the UK’s divorce processes from the European Union now underway, the future ramifications for the UK’s property markets are huge, with great uncertainty and no genuine precedent. items

“Even if it is virtually ‘business as usual’ for the UK in terms of commerce and legislation until 2018, such a huge change will unavoidably cause uncertainty in the economy and real estate markets,” JLL UK CEO Chris Ireland tells World Property Journal.

“In the case of a well-managed withdrawal, these repercussions will be substantially confined to the UK,” Ireland added.

We may witness a drop in occupier demand in the short run. Although constrained supply may reduce the impact on rents, activity will suffer as long as the initial uncertainty about direction and timing persists. In the short to medium term, investor mood may also stay subdued. The initial correction in property markets may be the most severe, but it should be followed by an upturn when opportunities re-emerge in UK core markets and the benefits of weak sterling become apparent. The importance of sentiment and relative price will be crucial.”

“A lot will rely on how quickly the negotiations progress, the larger political landscape, and if a clear direction of travel and timetable for an EU withdrawal can be defined early on,” Ireland said.

The following is a summary of JLL’s thoughts on the impact of the Brexit vote on UK commercial real estate markets:

Occupier demand will dwindle as the economy grows and business mood deteriorates. Although constrained supply may reduce the impact on rents, it will have a negative impact on activities.

In the near to medium term, investor sentiment will worsen further, reducing capital flows.

Over the following two years, there is expected to be a negative capital value adjustment (estimated at up to — 10 percent with yields moving around 50bp). Given current low pricing and the multinational nature of their occupier base, London sectors remain the most sensitive to correction.

Despite reduced borrowing rates, the residential market is projected to cool, but any correction will be minor, with the exception of prime London values, which are substantially more vulnerable.

The initial downturn in property markets may be the most severe, followed by an upturn as opportunities re-emerge in UK core markets and the benefits of a weaker sterling are realized. The importance of sentiment and relative price will be crucial.

Much will be determined by the pace with which negotiations are conducted, the larger political situation, and whether or not a clear and advantageous course of action is defined early on.