Date
25 March 2017
Some observers fear an exodus of multinational firms from UK after the Brexit vote, bringing downward pressure on office rental rates.
Some observers fear an exodus of multinational firms from UK after the Brexit vote, bringing downward pressure on office rental rates.

How Brexit could hit the UK property market

Two British insurers announced that they are suspending redemptions in their UK property funds following a surge in withdrawals in the past ten days.

The move has heightened concerns about the Brexit vote’s impact on the nation’s property market, in particular commercial properties,

The two suspended real-estate funds were from subsidiaries of Aviva and Standard Life. Investors won’t be able to trade the REIT fund operated by Standard Life for at least 28 days.

The companies’ moves brought back memories of the UK’s previous major property downtrend.

In 2007, Britain’s property market took a hit amid a redemption wave at REIT funds, which were forced to liquidate their assets to meet mounting requests, the Hong Kong Economic Journal noted.

Since the announcement of the referendum over whether UK should stay or leave the European Union, commercial properties have been under pressure, the paper quoted property consultant JLL as saying.

Big corporations are said to be prudent now in making office leasing decisions.

Short-term demand for office space is expected to slow following the Brexit vote, but low vacancy rate should keep rentals steady for the time being.

Rykadan Capital Ltd. (02288.HK), an investor in UK properties, told the HKEJ that although Brexit may have a big impact on the finance sector, the company’s recent project in Britain has received good response, thanks to sectors such as architecture and information technology.

Most UK office leases have tenor of 10-15 years, with the shortest being five years. That will help limit the immediate impact from Brexit, Rykadan added.

But some pessimists fear an exodus of international corporations from Britain after the UK parts ways with the EU, a move that could bring tremendous downward pressure on the rental rates.

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RC

EJ Insight writer

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