Developers are reviewing their options on several key London developments, following the UK’s Brexit vote.
While property agents are putting a positive spin on the result, for the longer term, there are fears that many projects yet to start across the capital will immediately be delayed by uncertainty. Investors will continue to appreciate the UK’s liquid and transparent investment market, many note, while the immediately weaker pound will make the market more attractive for overseas investors.
Nigel Almond, head of capital markets at Cushman & Wakefield, commented: “Development activity may stall in the short term as risk aversion increases. We will continue to see occupiers moving roles that it is not essential to perform in London to cheaper locations. This will be particularly true in the financial and legal sectors where offshoring and north shoring are well established trends. We do not, however, anticipate wholesale relocation of City businesses to other European centres.”
Head of London markets, Digby Flower added: “Whilst occupiers with lease events will have to make decisions, those with strategic plans will move slowly. Take-up levels are therefore likely to moderate and levels of rental growth to reduce.”
JLL’s Guy Grainger added: “For property markets, the initial correction may be most severe but should be followed by an upturn as opportunities re-emerge in UK core markets and benefits of weak sterling are recognised. Sentiment and relative pricing will be key.”
French insurance giant Axa, which is backing the 1.4m sq ft 22 Bishopsgate redevelopment in the City, said it had delayed starting on the project ahead of the referendum result. Its chief executive said it would need to “revisit our options” if the UK voted to leave – and after the result has added it is “considering all our options”.
Mark Farmer, chief executive of consultancy Cast, told the Financial Times: “The centre of the storm is going to be commercial property and speculative residential for sale. Anything that has planning consent that hasn’t been committed, or anything that is on site but is a phased project, is in harm’s way at the moment.”
In the West End, the Crown Estate has already said it will review its development plans at Morley House and Duke’s Court, both projects that have received consent.
Alison Nimmo, chief executive of the Crown Estate commented: “With last week’s vote to exit the EU, we now expect an extended period of uncertainty and volatility, and that will impact investor sentiment in the property market. None of us really know what Brexit is going to look like, but for us as a business, we hope the exit terms will preserve an open and inclusive market.”
The London residential market is also likely to see a further slowing, adding to a phenomenon already evident in some parts of the market. JLL head of residential research Adam Challis said: “We expect an immediate slowdown in housing market transactions, in the order of 10%-15%, resulting in downward pressure on prices for at least a couple of years. We anticipate current activity levels will return but this is unlikely before late in 2018.
“Price growth will be flat over 2016, reversing gains from the first half of the year, while our central expectations of price falls between 3% and 5% in 2017 and 2018 are based on the best case scenario of a relatively orderly adjustment to our new political realities.”
And at Savills, director of residential research Lucian Cook noted: “Uncertainty pre-referendum impacted on new buyer inquiries. A continuation of that uncertainty is likely to pull back price growth and transactions in the short term.”
LPA Perspective: It may be the talking point of almost every meeting, but as the days after the Brexit vote go by, so the initial scare of the decision has given way to an acceptance that there will be many months of uncertainty ahead – but also that business will continue to go on.
While some can point to Brexit being an excuse not to proceed with property acquisitions, or development projects, there is a growing base of evidence that many realise it’s simply sensible to press on.
In the housing market, the shortage has not gone away, nor have the number of people still wanting to get onto the housing ladder. Yes, some individuals have pulled out of highly leveraged purchases; but equally, agents have reported renewed interest from overseas buyers, suddenly seeing the weaker pound delivering an opportunity.
Predictions have less value than they appeared to in the past. But in the commercial world, nobody is actually moving any staff out of London immediately, and the likelihood is that demand for business space will continue to rise. Some overseas investors, such as the Hong Kong buyer who has just purchased the Travelodge in King’s Cross, think now is a great time to bag a bargain, while the pound is weaker.
The other key aspect for development is finance, and there are no indications that the supply of funds is cutting back, nor the cost of loans changing at all.
Expect planning committees to experience nothing more than their usual summer lull, across the capital.