Commenting on the Bank of England’s MPC decision to reduce the base rate to 0.25%, Andy Pyle, UK head of real estate at KPMG, said:
“The cut in interest rates to 0.25% by the Bank of England isn’t likely to have a major impact on the real estate market by itself, given the current low levels for base rates, and also that a number of lenders have pushed up margins by a similar amount since the referendum.
“Of more interest is the Bank’s view on the outlook for the economy contained in their Inflation Report – it is clear that there has been a weakening in the UK economy since the referendum result but how and when the economy bounces back is the key question. The Bank expects 2.5% less growth over the next two years, and ultimately a weaker economy will lead to lower occupational demand for property, which will have a knock on impact on values. However, I expect that there will be a reasonable degree of variation in the impact on different properties, depending on their location, tenant mix and the leases in place.
“There have been encouraging signs in the commercial real estate transactions market over the last 2-3 weeks, with a number of transactions concluded or in progress at values not far below where they were before the referendum, and we have seen some of the open ended property funds reopen for redemptions. Whilst a number of overseas investors are being cautious, others are attracted by the depreciation in sterling enabling them to buy more cheaply, and the reduction in interest rates has already had an impact on the value of the pound.”
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Notes to Editors:
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff. The UK firm recorded a revenue of £1.96 billion in the year ended September 2015. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 174,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.