Navigating the UK’s Residential Market During the Brexit Storm
- Oct 09, 2019
Less than a month prior to the U.K.’s scheduled departure from the European Union, concerns about Brexit and its economic impact are intensifying across the continent. However, some aspects of the British market continue to defy expectations. Recently, London took the top spot for the 11th time since 2000 in LaSalle Investment Management’s European Regional Economic Growth Index. LaSalle called London “the continent’s leading market for future real estate occupier demand.” And demand is largely coming from tech firms, which are still drawn into the U.K.’s cosmopolitan nature, fueling housing demand at the same time.
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In a special panel at the Expo Real conference in Munich, real estate experts revealed how the wave of uncertainties regarding Brexit has impacted the industry during the past couple of years. Richard Bentley, head of the U.K. Real Estate Finance at commercial bank Helaba, Martin Payne, managing director of Warburg HIH Invest, Joe Sarling, Homes England’s head of research and analysis, along with Mike Bessell, senior director of Invesco Real Estate’s European research arm sipped their five o’clock property tea at the “No exit despite Brexit?” panel.
“What’s really important from our perspective is that regardless of any political discussion, regardless of the noise that’s going on right now, the fundamentals of the market remain: we have a huge undersupply of housing in the market,” said Sarling. “Our only U.K.-focused mandate is our U.K. residential funds, which is playing to exactly that shortfall,” Bessell added.
On the upside, the government’s housing delivery agency sees persisting strong demand. “It’s not necessarily all doom and gloom. We have the ambition to deliver 300,000 homes each and every year and at the moment we’re at about 246,000. That’s an annual high. So we’ve done phenomenally well and yet we’re still 50,000 short.”
Investors pressed pause
Given the looming concerns about the return on investment, transaction volumes in London have hit the brakes. “It’s been a frustrating year. My job is to deploy capital into the U.K. market from German institutions and they just haven’t been doing that. There have been some deals, but they’ve been a few. And that’s against the backdrop of all our fundamentals in the U.K. that suggest that there still are opportunities,“ Payne noted. He added that the investors’ low appetite shows that London is now a dysfunctional market. Additionally, Bentley revealed that transactions are now mostly refinancing deals rather than new acquisitions.
All four industry experts agreed that uncertainties need to disappear in order for the market to pick up. “The negative sentiment needs do end”, Bessell said. Payne went even further and anticipated that Britain might soon be going through a general election process and a second Brexit referendum.