Two separate reports have reiterated UK property as a sector well-prepared to cope with the process of Brexit. Regional markets, in particular, have been identified as those likely to emerge as those best-equipped to deal with what is ahead, as Brexit is expected to have the biggest impact on London.
One report from M&G Real Estate believes that the UK property market is in a strong position to cope with the uncertainties that surround Brexit. M&G points out in its report that the economy as a whole is expected to prove sturdy in the face of the challenges ahead, and that international investors attracted by the low value of the pound are helping to prop up the strength of the property market in particular.
The firm, which is among the UK’s largest investors in property, believes that the UK will continue to experience demand from these international investors. This will combine with robust tenant demand and rising capital values to help keep the market resilient through whatever challenges Brexit might bring. The report does, however, predict that there will be some weakening of the market in central London, and this is a prediction that M&G is not alone in making.
This is not to say that the capital is going to be crippled by Brexit exactly, but it is widely predicted to take the brunt of the force. Analysis from Kames Capital says that the London commercial market is not going to experience a drastic collapse, but could be dragged down in the short- to medium-term. Certainly, Kames predicts, the next twelve months at minimum will see investors in other UK markets getting better returns than those in the capital.
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More than this, Kames goes on to say that there are currently “no signs of slowing” in regional markets. Rents have grown, albeit only a little in most cases, and properties continue to attract tenants for new leases.
Even if Brexit does bring about some change in this situation, Kames’ property team director David Wise points out, regional markets benefit from lesser exposure to the direct implications of Brexit, more stable track records, and a starting point in the current market of better returns. Furthermore, the fact that many regional markets are significantly less reliant on increasing rents than London is also likely to be a boon.
Kames concludes that for at least a year, likely eighteen months, London is a market that investors will find it “better to be out of.” Wise predicts that returns “will not fall off a cliff,” but points out that London was probably due for a correction in the near future even before the impact of Brexit had to be taken into account as the city was already well advanced in the current stage of its property cycle.