The sterling effect on commercial property will foreign investors rush in?

Sterling teetered through the first few days of the new Brexit environment and, although stock markets are eventually showing some resilience, currency values are still a national obsession.

In the run up to the referendum we saw significant press coverage of so called Brexit clauses being used to afford comfort to buyers in commercial property deals. Reuters was not alone in reporting that commercial property investors were adding Brexit clauses to their contracts so that buyers could abandon real estate contracts if the EU referendum resulted in a Brexit vote.

On the other side of the equation, sellers were also protecting themselves by including clauses stating that Brexit would not be enough to terminate a contract. We also saw money back guarantees being used in the event that Brexit occurred and pricing took a hit.

As we wait to find out the value of these measures and the extent to which they have been invoked in the days and weeks following the referendum, initial sentiment in the UK commercial property markets has been largely negative, with high demand to sell investments in the leading UK based property funds. Indeed the charge for the exit has been so severe, given the relatively illiquid nature of commercial property as an investment vehicle, that trading has been suspended in three major UK property funds managed by M&G, Aviva and Standard Life.

There is always a contrarian view, however, and arguably the current weakness of Sterling makes UK property better value for foreign investors than it has been for a considerable time.  So a new clutch of questions are being asked by some. Will international property investors actually come into the UK market, seeking out the country’s property crown jewels? Will a deflated currency ultimately prompt additional real estate investment by overseas investors? Is there pent up overseas demand that will seek to benefit from the uncertainty created by the “leave” vote and the power vacuum that has followed?

These are certainly interesting times for commercial real estate in the UK.

For further information please contact Steven Taylor on 0208 290 0333 or email staylor@judge-priestley.co.uk