Investment levels in commercial property muted as Brexit looms

Investment levels in commercial property muted as Brexit looms [Photo: iStock/artJazz]

For the past few months, people in every sector imaginable have been asking what June's EU referendum and the potential for a Brexit would mean for themselves and their business ventures, and property is no different. 

Property is particularly vulnerable to political influence, because it can be affected positively or negatively seemingly in the blink of an eye by a decision made by the government. This is why we usually see a slowing of activity round a general election, where buyers adopt a wait and see attitude and hold onto their cash until they know who will be in power and how that's likely to affect their investment. 

The potential for Brexit is bringing about this same sort of attitude at the moment in the commercial property market in particular, with the latest reports suggesting that international investors are deciding to keep their cards close to their chest at the moment and waiting to see how the referendum plays out before they decide if they want to invest in commercial stock. 

The latest UK Commercial Market Survey from the Royal Institution of Chartered Surveyors (RICS) said that normally strong demand for British commercial property among overseas investors has stalled somewhat in the last few weeks and months. 

It said that demand in central London in particular has fallen, while the projections for rental growth and capital gains outcomes have been stalling somewhat recently. In fact, only six per cent of investors believe that the Brexit vote would be a strong one for the commercial property market in the UK, showing just how vital a vote to stay in the EU could be for British property.

This is compared to some 43 per cent of investors who said that a Brexit vote would be a real negative for the British commercial sector. RICS also said that as many as 38 per cent of respondents now believe that political uncertainty is the main reason why some companies are feeling a little wary of investing in the UK. 

Not only would it be a problem that the market could see less investment, however. RICS believes that should the UK vote to leave the EU, there would be a real problem for central London, as more and more companies would opt to move their headquarters in Europe away from the British capital and into EU member states instead. 

"There is no doubt that since the EU referendum became a certainty following the general election last May we have seen a decline in interest from overseas investors in UK commercial property," said RICS chief economist Simon Rubinsohn. 

"At least in the short term, we know that international retailer and service providers are finding the UK market less attractive," he added.