Whether you’re pro or anti-Brexit, you cannot deny that the UK will be leaping into the great unknown when it finally leaves the EU.
This has only served to exacerbate the uncertainty surrounding Brexit, with a growing number of pro-Remain politicians imploring Chancellor Philip Hammond to publish some reports on how leaving the European Union will shape the national economy.
One particular area of concern is the commercial property market in the UK, which has struggled to deliver investor returns ever since the electorate voted to leave the EU.
With this in mind, the question that remains is whether Brexit will ultimately make or break this market in the long-term?
How is the Current Market Performing?
The commercial property market is difficult enough to crack at the best of times, with numerous issues surrounding the diversification of income. Without in-depth knowledge of the market and the typical real estate life cycle, it can be exceptionally difficult to achieve either short or long-term gains.
This market was therefore one of the first to bear the brunt of the EU referendum vote in the UK, as investors sought flight and an initial decline in valuations and rents was reported. Like with so many markets that have been impacted by Brexit, however, this decline was triggered by sentiment and perception rather than actual events, meaning that investors may be unable to determine the true state of commercial property in the UK.
This makes perfect sense on some levels, of course, particularly given the unprecedented and unknown nature of Brexit. This is compelling industry experts to issue cautious growth forecasts and timid valuations, regardless of the events that are shaping the real-time marketplace.
In fact, overseas investors (especially those based outside of the EU in nations such as China and the U.S.) are piling into commercial real estate in the UK like never before, with a recent purchase of the so-called Cheesegrater by Chinese developers being completed for £1.15 billion (which just happens to be 26 per cent higher than its September valuation).
Post-Brexit: What is the Future for Commercial Property Investment in the UK?
This highlights the chasm that often exists between perception and reality, especially when it comes to unknown elements such as Brexit. This does not mean that the market will remain buoyant when the UK eventually leaves the EU, of course, but it does suggest that it will have ample opportunity to diversify and grown in the future.
One of the biggest incentives for non-EU investors has been the depreciating value of the pound, which has improved the value proposition of commercial property in the UK. This would probably be sustained in the aftermath of Britain’s departure, so the market would most probably receive an initial boost during this period.
The long-term future of the market is far harder to call, as much will be determined by the nature of any deal with the EU and the long-term performance of the economy.
However, it’s highly unlikely that Brexit will break the commercial property business in the UK, particularly with so many opportunities existing outside of the European Union.