Global real estate investors fear Brexit will impact property investment in UK
Two thirds of leading global real estate investors believe that the UK leaving the European Union would result in less inward investment into property and property companies.
According to a survey of 25 real estate investors funds with assets under management of over $400 billion by KPMG a Brexit would have an impact on property investment.
While only a third of the investors surveyed have reduced or plan to reduce investment before the referendum on 23 June, some two thirds said that if the UK voted to leave the EU they would slow down investment into UK property during the period of uncertainty as new terms of engagement with Europe are being worked out.
And that initial period of uncertainty could potentially be more immediately damaging to the UK real estate market than the stable post-Brexit world, with investors more positive about the longer term state of a UK out of Europe. Indeed, only just over a third of investors said their own organisation would be less likely to invest in UK property post-Brexit.
When asked which European countries would be an alternative investment destination, the majority of investors named Germany, followed by France. This sentiment tallies with Paris and Berlin sitting alongside London in the top 10 cities for cross border investment globally in 2015 and, at a country level, the UK, Germany and France listed in the top five countries globally by 2015 transaction volume. Ireland, Scandinavia and Italy lagged significantly behind, and no other European countries were mentioned.
‘Since the commitment to an EU referendum, the real estate community has been noticeably reticent about investing in the UK, a fact now borne out by this research,’ said Andy Pyle, UK head of real estate for KPMG.
‘Why invest now, when June isn’t that far away? In times of uncertainty, it’s easier to sit tight. And while our analysis shows that the period to June is causing a hiatus for some, it’s the period of uncertainty after a leave vote that investors are telling us is the real concern,’ he explained.
He pointed out that the Brexit worriers have a number of key concerns, primarily stemming from the potential economic stagnation or even downturn a vote to leave could trigger. Chief among them is that a Brexit could dampen occupier demand, which is the driving force behind UK property investment, and could in turn lead to London losing its dominant position as Europe’s leading financial centre.
However, he added that other factors also play in, including changes to migration agreements meaning the loss of a vital international workforce and said that if these fears materialise, this wouldn’t just be bad news for London, it would have a knock on effect across the regions too.
‘Arguably the more important risk is the potential social impact. If a Brexit dents the rate of house building, the housing crisis will worsen,’ Pyle said.
He also pointed out that not everyone feels negatively about a break from Europe. ‘While in the minority, both our research and conversations in the market show some property investors view a Brexit as an opportunity,’ he said.
‘The possibility of dropping prices or a cheaper pound, could allow some investors to take advantage of less competitive processes, playing the long game, confident in the ability of the property industry to bounce back. But the fact remains that this research points to a slowdown in investment pre and, potentially post, June,’ he explained.
He believes that the key question is what can be done to limit the inherent negative effect caused by uncertainty over the UK’s relationship with Europe. ‘While market behaviours and our findings show some slowdown is inevitable, the ideal would be for the property industry to be able to understand and plan for what a leave vote would mean,’ said Pyle.
‘However, without clarity on that, unfortunately uncertainty will prevail. Should a Brexit happen, the UK needs to look seriously at terms which allow us to remain an attractive market for property investment and it’s fair to say that without significant focus, there’s a risk of widespread investor withdrawal and a negative knock on effect on the wider economy,’ he added.
The respondents surveyed by KPMG at the Re-Invest summit came from funds in some 54% of the funds surveyed came from Europe, 24% from North America, 18% from Asia and 4% from the Middle East.