A delay in office development activity and lower interest rates could bolster the property market post-Brexit, despite many predicting price falls for the sector.
Since the Brexit vote, asset managers and analysts have warned the move will put downward pressure on UK property valuations, leading a number of fund groups to downgrade prices on their property funds.
In the aftermath of last week’s vote, with Standard Life investments imposed a 5 per cent adjustment on its £2.7bn UK Real Estate fund, while Henderson added a 4 per cent adjustment to the £4bn UK Property fund following the vote to Brexit.
Aberdeen Asset Management followed, imposing a 3.75 per cent fair value adjustment on the £3.4bn Aberdeen UK Property Paif and feeder fund.
A Columbia Threadneedle spokeswoman told Fund Strategy there are no plans to adjust the prices on its UK Property Authorised Investment fund and UK Property Authorised trust.
However, despite these moves by asset managers, property prices are not necessarily headed south.
Miles Gibson, head of UK research at CBRE, the independent valuer who advised Henderson on the valuation move, says there might be some delays in the short term.
“The complex task of resetting Britain’s relationship with the EU is likely to take many years. In the near term, we expect some hesitancy among occupiers about space decisions,” he says. “We expect international occupiers will wait to hear more about whether arrangements might be put in place which give the UK continued access to the EU markets.”
Gibson says any increase in property yields may be temporary, because the “attractiveness” of the UK market will provide long-term support for prices.
He says: “Property rents, yields and prices are also likely to be supported by a delay in office development activity in the wake of the vote, and a decline in the value of sterling could be a catalyst for increased foreign investment in the UK.”
Hargreaves Lansdown senior analyst Laith Khalaf says the effect of the EU referendum on the UK property market depends on the ultimate impact of Brexit on the UK economy, which is difficult to predict with accuracy.
He says: “Even if the economy does slow down, one silver lining for the property market is the Bank of England is likely to keep interest rates low as a result, which should keep mortgage rates affordable for UK homeowners, and debt payments low for UK companies.
“At least one commercial valuer has also said that they are finding it difficult to price properties since the referendum, because commercial property deals are quite infrequent, so as yet there is little indication of how the referendum result has affected the price buyers are willing to pay.”
Henderson Global Investors advised clients considering selling out of the property fund to keep a close eye on the increased uncertainty around prices in the sector before moving ahead with a transaction.
Khalaf says: “The costs of buying and maintaining commercial property are also high, and while commercial property investment does have some diversification benefits and may provide a relatively attractive income, these costs and risks need to be factored in to any investment decision.”
Online platform rplan.co.uk saw that property funds accounted for 76 per cent of withdrawals on the platform over the Brexit weekend.
Stuart Dyer, rplan.co.uk’s chief investment officer, says that investor fears about the property market “are striking”. “Clearly, there are worries that property would be affected by a possible economic downturn and the withdrawal of foreign investors,” he says.
“But investors should not be too hasty in making decisions about the consequences of Brexit. Property and other asset classes have their roles to play in a balanced portfolio invested for the long term. Diversification helps to reduce both the impact of volatility and risk.”