Despite the marked ‘Brexit uncertainty’ across the sector, investors in the London commercial property market should be ready to move quickly, writes Simon Ewing
Since the referendum on the UK’s membership of the EU in 2016, the extent to which the result will prove detrimental to the London commercial property market has been a hotly debated topic.
The greatest fear, perhaps, has been a mass exodus from the City of London, as rumours of financial services giants relocating to European capitals abounded. Meanwhile, ‘Brexit uncertainty’ has become a key phrase when it comes to investment decisions in all sectors.
Granted, there was a fall in activity in the lead up to and immediately after the referendum. However, investors have been actively investing in the commercial property market since. Knight Frank’s The London Report 2019 reported a total of £16 billion spent on commercial real estate investment in 2018 and a total take-up in London of 14.8 million square feet, which is the highest since 2014.
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One only needs to look at the list of companies signing new office leases in London recently, including Deutsche Bank, Facebook, Apple and Google, to see that predictions of large corporates turning their backs on the London market has not happened to the extent initially feared.
Why do investors remain so willing to invest in the capital’s commercial property?
Regardless of Brexit’s looming presence, the London market’s intrinsic value remains a catalyst for investors, in particular, overseas investors who were responsible for 80 per cent of commercial real estate acquisitions in London last year.
London has a clear, trusted and well-established legal framework in place and experienced property professionals on hand to assist with day-to-day management, thus alleviating the stress of owning property overseas.
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The London market tends to promote landlord-friendly lease structures and offers relatively long leases which provide investor protection against short-term fluctuations, allowing for stable income streams to be secured.
London also boasts expertise in many of the established industries linked to commercial real estate such as insurance, banking and finance, which is exceptionally difficult to replicate. Its position as one of the world’s most liquid and transparent real estate markets remains unchanged.
London has historically provided ample opportunities for financing and continues to do so despite Brexit. There are many alternative finance providers in the market which means there are more options than ever before for those investors wishing to leverage their capital.
A further, highly-publicised impact of Brexit has been the currency fluctuation. Sterling’s continued weakness on a global scale is advantageous to overseas investors as this represents an increase in their purchasing power.
The weakness of the pound amounts to London often being comparatively less expensive than their own markets.
The debacle over Brexit has had an impact on investor sentiment but assuming that an ultimate decision is reached, creating certainty one way or the other, then the prospects for rental growth value in London, when compared with lower growth and increased volatility in emerging markets, will lead to greater investment.
CBRE has predicted that London offices will be the strongest performer in the commercial property market in 2020-2022 as a result of such growth in rental value.
The prospects for London as a hub for commercial real estate remain bright, in spite of Brexit. A word of warning though – with the relative lack of stock, the landscape will remain very competitive and investors should be ready to move quickly.
Simon Ewing is a partner at Charles Russell Speechlys
