Central London properties are the most exposed to any Brexit impacts, a property fund manager has warned.
Investment into property in the UK dropped from £8.4bn in Q1 2015 to £6.3bn in the first three months of 2016 “due to a combination of factors including wider macro-economic issues such as Brexit”, says Alex Walker, manager of the £440m Kames Property Income fund.
He says: “We see the sectors most vulnerable in the event of a Brexit scenario as central London offices and residential, as well as student accommodation and the south-east UK markets. Such periods of uncertainty do, of course, often present opportunities and we’ll be looking for such opportunities both pre and post June’s vote.”
Walker is not alone, with Stephen Hayes, head of property securities at First State and manager of the £257m Global Property Securities fund, recently warning that property prices and transaction volumes will be hit if the UK leaves the European Union.
He said a potential Brexit “could be an excuse to lead to transactions and prices moderating in the UK, especially in London”.
Broker Savills’ research from March finds home values in London’s best districts fell for the third consecutive quarter, with the broker citing Brexit fears as one of the major reasons for the lack of demand.
Properties in prime central London declined 0.8 per cent in the first three months of the year, Savills said on Wednesday, forecasting that values won’t see a rise this year.
Prices in some high-end London neighbourhoods, such as Belgravia, Chelsea, Knightsbridge and Mayfair, rose 17.6 per cent in the past five years but values have dropped 6.7 per cent from the peak in the third quarter of 2014, Savills says.
Walker says liquidity is also a headwind for the property sector over the next few months, pointing out that investment volume has been slowing since the start of 2016.
Investors are also growing wary of the sector. In February, property funds saw net retail outflows of £119m, marking the largest outflows since 2008, according the latest Investment Association figures. This compares with an outflow of £28m in January and positive flows in December of £151m.
Among the worst hit funds in the month between January and February 2016, was the £1.9bn Aviva Investors Property Trust, which lost £60.1m, according to FE.
Others that were hit hard were the £375m Aberdeen Property Share fund, which lost £10.2m, and the Schroder Global Real Estate Securities fund, which saw £11.3m of outflows.
That compares with the £1.35bn Threadneedle UK Property fund and the £2.4bn L&G UK Property fund, which saw inflows of £17.5m and £11.4m respectively.