BREXIT FALLOUT: 'It is very possible that the long bull market in real estate is over'

JUL 26, 2016,

Stockbroker Peel Hunt is warning that “long bull market” in UK property could be at an end thanks to the Brexit vote and is predicting a huge collapse in London office values.

 

Peel Hunt’s James Carswell and team warn in a note sent to clients this week that: “Following the Brexit vote, uncertainty has replaced confidence and it is very possible that the long bull market in physical real estate is over.”

 

Carswell and team don’t expect a repeat of the 2008/9 property crisis but they think we will see a stagnation in rent growth and a nosedive in office and retail property values.

 

The note says: “We expect rental growth to disappear or even reverse and expect London property valuations to fall by around 5-10%.”

 

Finance firms are unlikely to take on any more staff in London while the UK’s future relationship with Europe remains uncertain and this fall-off in demand will hit rents. If the UK fails to negotiate passporting rights, which let finance firms operate across Europe from their UK base, then up to 4% of London office space could fall empty as companies relocate staff, Peel Hunt says.

 

The broker says that “even before Brexit, there were concerns of an overhang in the City” and the broker says it “now predicts a c15% fall in capital values for City offices over the next 18 months and a 8% fall for West End and other London offices.”

 

Peel Hunt says that the fall in the pound against the dollar and the euro in the wake of the Brexit vote will add to retailers’ costs and it expects shopping centres and other retail space to suffer as a result. Continued competition from online retailers won’t help either.

 

This chart shows just how bad the stagnation and slump in UK property is set to be — note the big falls across the board for the City and the big fall in the value of retail property:

 

Property collapse

Peel Hunt

The UK’s property sector has been hit particularly hard by Britain’s surprise decision to vote to leave the European Union on June 23. Property funds that hold £15 billion-worth of British commercial buildings were forced to freeze withdrawals after being overwhelmed by customers trying to pull money out of the sector.

 

Property stocks have also taking a beating, as this graph showing percentage changes since the referendum from Peel Hunt indicates:

 

Property

Peel Hunt

Residential property is expected to take a hit too, although the effects on this market have yet to filter through. FinnCap is predicting a fall of up to 20% in London’s luxury market and Capital & Counties on Tuesday cut £200 million off the value of its land holdings at Earls Court, a sign of weakening central London demand.