Sales Slowdown: Not Only UK, Not Only Brexit

Real Capital Analytics’ Tom Leahy (Photo: PropertyTV)

LONDON—The socioeconomic volatility that has settled over various regions of Europe in recent years has come at last to the UK, where a referendum on whether to exit the European Union is scheduled to take place Thursday. Among other effects of the so-called Brexit vote, central bankers in Europe and Asia are preparing to take pre-emptive measures against a flight from the British pound and commercial property investors are said to be taking a pause from doing deals in the UK. Real Capital Analytics data show that London has slipped to number three among global property markets, with the $7.2 billion of transactions in Los Angeles during the first quarter surpassing the $6.4 billion tallied for the UK’s largest city. Coincidentally, CBRE data on global occupancy costs reveal that London’s West End is no longer the world’s priciest office market; it now has slipped into second place behind Hong Kong. But are Brexit jitters the only factor behind slipping deal volume in London, and is the UK being hit especially hard? In both instances, the answer is no. Looking at year-to-date cross-border investment by Asian and Middle Eastern investors, RCA data show that while volume in London is off 61% from the year-ago period, Berlin has fared even worse with a decline of 82%. Many of the major US markets, including New York City, San Francisco and Washington, DC, also have seen double-digit Y-O-Y declines in cross-border deals, despite the United States’ status as a safe haven for commercial real estate investment. “While the referendum vote is having an effect on the market, it should be seen as part of a wider slowdown, not just in Europe but across the globe,” Tom Leahy, London-based director of market analysis, EMEA at RCA, tells GlobeSt.com. “Investment in income-producing real estate is down by 29% in the first five months of 2016 versus 2015.” On a percentage basis, the pullback by Asian and Middle Eastern players has been the same in the US as it has been in Europe: 40%. Although Leahy notes that Brexit undoubtedly has been a factor in the slowdown in Europe, “high pricing; availability of debt in some markets; other political considerations; slowing global growth, especially in China; and fear over persistently low oil prices have all played a part.” He adds that last year was “a record year in many markets in terms of the amount of investment, so it is perhaps not surprising that investors have paused for breath and volumes are down” given global uncertainties. One factor, though, that has left London especially vulnerable to investor caution is high pricing. “Our Central London office price indices show sale prices 80% above their average” as of the first quarter, Leahy says. He adds that in both the US and Europe, cross-border investment volume in some secondary markets has been up sharply, although in a few instances the triple-digit increases have been due to a couple of very large transactions, such as the $810.9-million acquisition by Singapore’s Mapletree Investments of the Green Park office complex in Reading, UK from Oxford Properties Group last month.