KPMG launches research into the potential impact of Brexit on the UK’s real estate market.
A KPMG survey of 25 global real estate investors with assets under management of over $400bn has revealed that two thirds believe a Brexit would result in less inward investment into UK property and property companies.
While only a third of the investors surveyed have reduced or plan to reduce investment before the referendum on 23 June, some two thirds said that if the UK voted to leave the EU they would slow down investment into UK property during the period of uncertainty as new terms of engagement with Europe are being worked out.
And that initial period of uncertainty could potentially be more immediately damaging to the UK real estate market than the stable post-Brexit world, with investors more positive about the longer term state of a UK out of Europe – only just over a third of investors said their own organisation would be less likely to invest in UK property post-Brexit.
When asked which European countries would be an alternative investment destination, the majority of investors named Germany, followed by France. This sentiment tallies with Paris and Berlin sitting alongside London in the top ten cities for cross-border investment globally in 2015 and, at a country level, the UK, Germany and France listed in the top five countries globally by 2015 transaction volume*. Ireland, Scandinavia and Italy lagged significantly behind, and no other European countries were mentioned.
The survey took place among participants of the Re-Invest Summit at MIPIM 2016, organised by Reed Midem.
Andy Pyle, UK head of real estate for KPMG, commented on the research, saying: “Since the commitment to an EU referendum, the real estate community has been noticeably reticent about investing in the UK – afact now borne out by this research. Why invest now, when June isn’t that far away? In times of uncertainty, it’s easier to sit tight. And while our analysisshows that the period to June is causing a hiatus for some, it’s the period of uncertainty after a ‘leave’ vote that investors are telling us is the realconcern.
“The Brexit worriers have a number of key concerns, primarily stemming from the potential economic stagnation or even downturn a vote to leave could trigger. Chief among them is that a Brexit could dampen occupier demand, which is the driving force behind UK property investment, and could in turn lead to London losing its dominant position as Europe’s leading financial centre. However, other factors also play in, including changes to migration agreements meaning the loss of a vital international workforce. If these fears materialise, this wouldn’t just be bad news for London, it would have a knock-on effect across the regions too.
“Arguably the more important risk is the potential social impact. If a Brexit dents the rate of housebuilding, the housing crisis will worsen.
“Of course not everyone feels negatively about a break from Europe. While in the minority, both our research and conversations in the market show some property investors view a Brexit as an opportunity. The possibility of dropping prices or a cheaper pound, could allow some investors to take advantage of less competitive processes, playing the long game, confident in the ability of the property industry to bounce back.
“But the fact remains that this research points to a slowdown in investment pre and, potentially post, June. The question is what can be done to limit the inherent negative effect caused by uncertainty over our relationship with Europe? While market behaviours and our findings show some slowdown is inevitable, the ideal would be for the property industry to be able to understand and plan for what a ‘leave’ vote would mean. However, without clarity on that, unfortunately uncertainty will prevail. Should a Brexit happen, the UK needs to look seriously at terms which allow us to remain an attractive market for property investment – it’s fair to say that without significant focus, there’s a risk of widespread investor withdrawal and a negative knock on effect on the wider economy.”
The respondents surveyed by KPMG at the Re-Invest summit came from funds in Europe (54%), North America (24%), Asia (18%) and the Middle East (4%).
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*Real Capital Analytics, Inc 2016
KPMG surveyed 25 senior investors employed by global investment companies for this research. All of the investors surveyed have properties located in the UK within their real estate investment portfolios and the total worth of their global real estate investment portfolios equals over $400bn.
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