“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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