The latest UK Commercial Market Survey from the Royal Institution of Chartered Surveyors (RICS) indicates that demand for UK commercial property among international investors has stalled.
It says that short term uncertainty has contributed particularly to falling international investment demand in central London and rental and capital value projections have been scaled back since the announcement last year that a referendum would be held.
On top of this only 6% of the RICS survey respondents believe that Brexit, the term given to a UK decision to leave, will have positive impact on the country’s commercial property sector
The demand indicator among international investors for UK commercial property is now at its lowest level since RICS records began in 2014 with just 5% of members surveyed reporting increased interest from overseas companies over the last three months. This is a considerable drop from 36% in the second quarter of 2015
Uncertainty caused by the EU referendum has been cited by 38% of RICS members working within the sector as the reason why major international retailers and other businesses have been nervous of investing in Britain.
Should Britain leave the EU, some 43% of respondents feel that it would have a negative impact on the commercial property sector and only 6% said a Brexit scenario would have a positive impact on the commercial property sector.
RICS says that some international firms are drawing up contingency plans to shift their headquarters in the event of Brexit. Overseas firms based in the UK occupy large swathes of real estate, and their departure could harm office occupancy rates, and the local economy.
Likely beneficiaries of a Brexit are Paris, Frankfurt and Dublin, although the report said London was likely to remain a magnet for investment. The report points out that while investment rates have eased, they are not frozen.
‘There is no doubt that since the EU referendum became a certainty following the general election last May we have seen a decline in interest from overseas investors in UK commercial property,’ said RICS chief economist Simon Rubinsohn.
‘At least in the short term, we know that international retailer and service providers are finding the UK market less attractive,’ he added.
The report also suggested that British farmers, many of which rely on payments from the EU’s Common Agricultural Policy to pay their rents, would take a big hit if the UK leaves the EU.
The RICS EU Referendum Paper shows that a range of key industries from residential housing to construction and rural have been hit by short term uncertainty. However, across the board, in the longer term steady growth is still predicted across rural, land and built environment sectors.
It suggests that in the event of Brexit, farmers will most likely lose access to the EU single market and CAP. The question that Government has yet to answer is how much of the current support system they would replace in such an event.
In terms of CAP transition, the EU Commissioner for Agriculture has suggested that the EU may well have a contract to support UK farmers until 2020. ‘However, this would still mean that we would have to restructure UK land and farming businesses in the short to medium term,’ said RICS rural chair, Gerard Smith.
‘While the strong gains seen in land prices over the last decade have come to an end, and some are now forecasting falls ahead, 70% of our rural members feel that land would still remain a strong investment opportunity overall,’ he explained.
‘While there is no doubt that the majority of those working in rural sectors will be concerned around the possible withdrawal of CAP, quite uniquely, there is an anomaly in that forestry has benefitted from the uncertainty around the EU and the consequential weakening of the pound,’ he pointed out.
The RICS Royal Charter requires that the body serves the public’s interest and as such, it will not provide a steer on which way to vote. As such, the EU Referendum Paper, objectively examines various scenarios, but does not take the analysis to the next stage of a ‘stay or go’ conclusion.
