What Brexit Could Mean to the Commercial Property Sector

What Brexit Could Mean to the Commercial Property Sector

There has been much debate about the Brexit surrounding its impact on the economy as a whole, in addition to specific industries directly related to the EU. This article will shed some light concerning the potential impact of the Brexit on the commercial property sector.

It is undeniable that there have been changes in the market in the run up to the referendum and to the immediate reaction to the announcement that Britain has voted to leave the EU. The pound has slumped to a 30-year low against the dollar which has led to instability in the financial markets (as the FTSE 100 drops 5pc) and thus investment in the country as a whole.

There are a number of factors that lead to a lack of confidence in the economy, including oil and gas prices and an upcoming US Presidential election. Compounded by commercial values being inflated and now the public vote to leave the EU Britain’s credit score is at risk.

In order for the economy to adjust, the Bank of England may need to increase in inflation rates or interest rates, albeit not immediately (given their promise to inject £250bn into the economy to keep it afloat), which will have an impact on the commercial property market.

In simple terms, investors have been worried about the UK’s prospects of leaving the EU and it will take time to let the dust settle for both investors and occupiers alike. We have already seen a slow-down in the commercial property sector with the level of rental acceleration and take-up in the last six months, particularly in the West End, almost certainly as a result of the uncertainty of the Brexit referendum. It is likely that we will experience at least two years’ worth of instability in the commercial property sector while the UK and its companies start to get to grips with the change in regulation and legislation. However, from a tenant’s perspective, this could open up great options to agree more favourable property terms.

It’s currently unclear as to whether demand in the commercial property sector will rise or fall in the UK, but from a tenant’s point of view, considering there will be an element of instability in the economy and loss of confidence of future business growth, the need to expand would potentially be put on standby which would inevitably see demand for commercial property fall in the UK. This will be especially true for financial companies which dominate London, as these businesses will feel the impact from financial insecurity due to the expected reduction in investment. This could result in businesses demanding short lease lengths with a break option to provide a safeguard during a period of uncertainty.

On a similar note, many companies that predominantly transact business with Europe may have to relocate from the UK, which could potentially release hundreds of thousands of square feet of commercial property space. This increase in availability could reduce headline rents and/or allow non-EU centric businesses to take up more space which could increase rents once the dust has begun to settle.

In summary, there won’t be a mass exodus of companies leaving the UK, although some with direct ties to Europe may do so. This may free up commercial property, although whilst we expect a period of uncertainty in the economy and business growth, investments and in turn rental values will most likely cool-off. This could provide an opportunity for business occupiers to negotiate significantly improved rental terms from their existing or new office space in London and other regions of the UK.

Do you need advice on the commercial property sector following Brexit? Contact Aspire here or call on 020 3627 2555

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