Far from experiencing a post-Brexit collapse, the UK market is still attracting international investors and could become an even more popular destination if some geopolitical risks on the horizon materialize, delegates have heard at the PropertyEU Global Capital Flows briefing, which was held at Colliers International’s London headquarters.
‘In case of a Trump victory in the presidential elections in November there could be significant capital flight from the US and the UK could end up being the safe haven of choice,’ said Walter Boettcher, research director and economist, UK & EMEA Research at Colliers International. ‘It is not just American but also Middle Eastern investors who would leave the US and the UK would be set to benefit.’
Capital flows are particularly unpredictable at the moment, experts agreed, and it is almost impossible to make forecasts as all is still in flux – there is little reliable data and many investors are still assessing the impact of Brexit. However, what is clear is that the initial market contraction and substantial drop in investment volumes in July and August was a short-lived, knee-jerk reaction to the vote to leave the European Union.
Since then the market has experienced a ‘Brexit bounce’ that appears to be sustainable. ‘Brexit has been a major shock to the system but its impact has been extraordinary,’ said Boettcher. ‘Despite a surprise referendum result at a late stage of the property cycle, there has been no massive pricing correction. Rental growth is stable and there is a lot of activity in London. There is no evidence that foreign investors have stayed away.’
Quite the opposite: while some investors have undoubtedly chosen to sit on their hands, waiting for some clarity on the post-Brexit future, many others have swiftly taken their place. According to Boettcher, Asian institutions as well as Swiss funds have been active in the market, and ‘perhaps surprisingly, many EU investors have been bidding for projects.’
The devaluation of sterling has made investments in the UK seem like good value, especially compared to the increasingly expensive German market. London can also offer size as well as a concentration of expertise and skills. To give an example, a Colliers International study shows that if Frankfurt successfully clawed away just 2% of financial services jobs from London, its infrastructure would be overwhelmed. Mass transfers of banks, companies and jobs are not feasible in the short term.
This helps to explain why, ‘despite the fact that London was the epicentre of Brexit, vacancy rates are at record lows of 2.5-3%, which is extraordinary and seems a real vote of confidence in the city,’ said Boettcher. ‘The many leasing deals show a buoyant market in the regions too.’
The uncertainty over the direction the Government wants to take will remain at least until the Chancellor’s Autumn Statement in November and the prime minister’s announcement of when Brexit negotiations with the EU will start, expected at the beginning of 2017. In the meantime, said Boettcher, despite the gloomy predictions, ‘the UK is very much in a business as usual mode.’