Brexit Boom for Commercial Property

Since the vote for Brexit, the commercial property market has been braced for a recession. However, it looks like things are bouncing back. Our Partner Julien Pritchard explains more.

Ever since the UK voted to leave Europe, the majority of commercial property professionals have been bracing themselves for a substantial slump in the commercial property sector; it was certainly noted that immediately after the vote the London market came to a standstill overnight. However, the month after the Brexit vote over a million square feet of commercial property was let in the city – confidence was truly restored.

This nod of assurance appears to have continued into 2017 as purchases by investors hit a nine-year high of 127,280 in 2016/17, up six percent from 119,920 in 2015/16 according to Lendy, Europe’s leading peer-to-peer secured lending platform.

The significant rise in commercial property transactions demonstrates the continuing attractiveness of UK commercial property to both domestic and overseas investors.

Lendy explains that the UK property market is the most fluid in Europe and has a number of features – such as upward-only rent reviews and long leases – that are absent in other overseas commercial property markets.

The fall in the value of sterling since the Brexit vote in June 2016 has made the UK property market more attractive to foreign property buyers who are hungry for yield in a low-interest-rate environment.

Lendy adds that properties in the UK usually have longer leases than those in Europe – leases on commercial property are usually over five years. Long-term leases can aid stability for investors and offer more settled returns over a long period, thus offering the chance of lower void periods (when a property lies empty at the end of a lease term).

In addition, upward-only rent reviews (rents cannot fall at a rent review) which are still dominant in the UK protect the investor from a declining revenue stream caused by a weaker economy.

Liam Brooke, co-founder of Lendy Ltd, states “the attractiveness of the UK property market for overseas investors has continued, shrugging off the threat of a crash in sales after Brexit.”

 “The number of commercial property sales has risen significantly, reflecting how the fall in the value of sterling has provided investors with a window of opportunity to make the most of the booming property market.

“Considering all the fears around Brexit it is a strong showing and illustrates that investor confidence is resilient.”

The attractiveness of the UK market appears to be coupled locally with a shortage of certain types of commercial units, namely industrial units. Ther are new buildings coming on the market but predominantly as leasehold commercial short-term lets, not freehold which is bad news for owner occupiers and commercial investors. This shortfall coupled with a continuing drive to build more residential sites, convert existing commercial land to residential uses and a perceived unwillingness by the banks to fund commercial developments means that the supply of commercial units is unlikely to increase in the short term.In the longer term, the General Election will no doubt add some issues into the mix whilst Brexit negotiations will throw enormous amounts of uncertainty into the equation. However, the current trend does give a glimmer of hope in what is expected to be a difficult period.

MORE INFORMATION 

For all enquiries relating to commercial property, please contact our Commercial Property Department – our team of expert solicitors will be able to assist. Call on 01708 229444 or email us using the form above.

This article was written by Julien Pritchard, Partner at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of June 2017.