If the United Kingdom votes to leave the European Union it could result in a drop in commercial property values in the City of London, according to a new report commissioned by Woodford Investment Management and carried out by Capital Economics.
Capital Economics' report suggests that an exit from the EU may have a negative impact on job creation and growth due to a potential 8%-15% fall, according to estimates. The report concedes that not enough is known at the moment to make a proper judgement and much depends on further negotiations.
The report highlights the biggest impact of an exit from the European Union would be on the City of London’s commercial property market. It states; “If Britain lost its free access to the single market, there is a worry that this could rapidly change the country’s status as a commercial gateway to the rest of Europe, with adverse consequences for both occupier and property investment markets” and further asserts that if overseas demand in the City did drop due to leaving the EU, the market will be severely impacted, especially when you take into account the fact that overseas buyers are responsible for around 50% of all commercial property transactions in Britain.
The report predicts a British exit from the EU as ‘likely to hit the health of the City’ and even states that is it possible that some overseas businesses may ‘close or scale back their London operations, putting a dent in occupier demand.’ It also highlighted that a drop in demand would come at ‘an unfortunate point in the development cycle’ and this could result in a vacancy rates spike and in rental values dropping, putting many property investors and business owners in a tricky situation.
Looking at the office space market, the report suggests investors may find themselves reassessing the City’s price premium which has grown steadily over the past two decades and more than doubled in this period - but with less demand this is something that may not continue.
If the City was to become less attractive and, as the report states itself ‘permanently damaged by the United Kingdom’s departure from the European Union’ in the eyes of potential investors, then a jump of between 50 and 100 basis points in City office yields would not seem implausible and this would equate to 8-15% of capital values.
This is one report looking into how Britain’s exit from the EU could impact the City of London and there are sure to be many more to provide business owners and property investors with a broad understanding before it is time to vote.
Looking at the office space market, the report suggests investors may find themselves reassessing the City’s price premium which has grown steadily over the past two decades and more than doubled in this period
Abdul is an Associate Director in the Valuation Services department, and is based in London.
Involved in RICS ‘Red Book’ valuations, Agency and Fixed Charge Receiverships, he also advises banks and insolvency practitioners on transaction activities, asset management and general property advice.
Prior to joining Eddisons in 2011, Abdul was a senior surveyor within the valuation and agency departments of a firm of chartered surveyors. He has managed and transacted a number of diverse and often complex cases, including commercial and residential property, development land and some specialist assets (including a sale of an airport).
Abdul has an MA in European Real Estate from Kingston University, is an RICS Registered Valuer and RICS Registered Property Receiver (MRICS/RPR) as well as a Fellow of the Association of Property and Fixed Charge Receivers (FNARA).