By David Gurton, Director, Caxtons Chartered Surveyors
On June 24th, Britain awoke to find that the country had voted to leave the European Union following some 40 years of membership.
Following the momentous decision – that most politicians and pundits had not seen coming – the country was in a flux. The media proclaimed messages of doom and gloom or freedom at last – depending upon their leaning. Some red tops were joyous whilst broadsheets and the 'serious' media were more reticent. And the BBC remained even-handed.
Whatever the mood of voters, it was a wake up call for in business, including those of us working across the property sector – so often held up as a barometer of how the economy is fairing. Since the vote there have been some extraordinary and often contradictory stories - sometimes appearing on the same day.
In the beginning it seemed nobody wanted to put their head above the 'positive parapet', but by the third week things began to look up.
On 31st July The Sunday Telegraph reported that analysts had reversed some downgrades made immediately after the Brexit vote and economists now believed the UK would grow faster than expected in 2016 and 2017. Meanwhile The Sunday Times quoted Grainne Gilmore, head of UK residential research at Knight Frank saying property markets had been reassured, post-Brexit, by the swift appointment of a new Prime Minister and the interest rate cut implemented by the Bank of England.
By the end of the first week in August there were reports of a 3+ per cent drop in commercial property values in July with expectations that it would fall further. CBRE, the world's leading commercial property and estate services adviser, confirmed that hardest hit were offices with retail and industrial property values both down. However, rental values were maintained across the board. Two weeks later BBC News, the FT and The Daily Telegraph all carried stories on residential property sales remaining steady in July, albeit slightly fewer when compared with July 2015.
As August came to a close consumer spending was up and the economy remained resilient - despite Brexit. On the commercial property front Wells Fargo, the world's largest bank, agreed a £300m deal to base its new European HQ in London whilst Germany's Union Investment pulled out of a purchase in Cannon Street and law firm Eversheds cancelled its purchase of another City property. A mixed bag of news.
The beginning of September heralded a call for the suspension of stamp duty to kick-start falling housing sales and stop foreign investors pricing Londoners out of the market. The media carried stories on investors seeking out alternative or specialist property, such as student accommodation, health centres and care homes. There were confidence warnings over commercial property, reports that UK house-property prices had fallen post-Brexit and that the London office market was at a standstill. The construction sector raised concerns about the future.
Conversely Britain's largest listed industrial property developer Sergo raised £325m, Canada Life lifted its property fund suspension (imposed after the Brexit vote), the pound rose as figures confirmed that UK manufacturing had rebounded in August, and China's Greenland Group committed to the launch of its £800m 67-storey Spire London tower in West India Quay – the tallest residential tower in Europe.
Goldman Sachs increased its foothold in UK real estate with a deal worth £338m and *Hong Kong's SRE Group announced they were buying Société Générale's London HQ for £84.5m with a lease back agreement at £5.9m p.a. until 2020 – a gross initial yield of 7% (*Financial Times).
Confidence continued to climb through September with the UK trade gap narrowing as EU exports rose. Conversely ONS figures released post-Brexit showed that the housing market had cooled and commercial property values continued to fall.
In the third week of September figures released by Rightmove reported a bounce-back for property prices and three property services firms announced they were dropping a Brexit clause from their valuation reports for most UK assets.
Some commentators' opinions modified, saying Brexit might not be as bad as anticipated, and the OECD revised its UK economic growth forecast upwards. But the Bank of England Financial Policy Committee was still erring on the side of caution showing concerns over the impact on the UK's public finances, commercial property and over-indebted borrowers (The Independent, FT).
At the end of the month interest rate rises were 'less likely' (Financial Times and The Times) but on 4th October the Bank of England's Financial Policy Committee said that there were still concerns about the commercial property market (prices had fallen in both July and August).
Throughout October the positive and negative stories continued to pour in. The service sector maintained its recovery and by the 10th of the month Knight Frank said the luxury property market was gradually recovering after the Brexit vote. Smaller (value) commercial property auctions were doing good business and independent forecasts compiled by the Treasury showed the economy was performing far better than expected. Cushman & Wakefield analysis revealed consistent but slower progress in (commercial property) deal activity. At the end of the month AXA Investment Managers Real Assets confirmed it would continue with the construction of its 22 Bishiopsgate project in the City of London and the National Association of Estate Agents' MD Mark Hayward said that (residential) buyer confidence was growing.
Things were looking quite rosy at the end of the month and. November also began on a positive note with construction companies enjoying a rise in activity, data from NHBC implied house building was unaffected by Brexit, manufacturing figures showed improvement in September and the value of commercial property grew in October – the first monthly increase since the June 23rd vote.
Mid-month deceleration was forecast for office developers; PwC predicted that tax receipts would be hit due to the economy's slowdown, but the day after the Autumn Statement the last property fund reopened. However, the Chancellor did not rescind any implemented or impending changes made in George Osborne's previous budget hit on buy-to-let landlords and owners.
December entered with warnings from the Bank of England that commercial property posed a risk to financial stability, and investment firm London Central Portfolio recorded massive falls in prime transactions blaming stamp duty and Brexit for the prime home sales slump.
Almost six months after the referendum, it was still a rollercoaster ride for the property sector.
The close of the year saw property predictions for Brexit and beyond; stories of percentage rises and falls across the sector cancelled one another out; then Christmas provided a breathing space ...until the New Year.
Early 2017 property news, in the main, has been positive but with signs that commercial property values continue to fall. In the middle of January Mark Carney told MPs that the immediate risk posed by Brexit to the UK economy had declined - and then the prime minister announced her plans for existing the EU.
So, in conclusion, it is impossible to predict accurately where we will be this time next year. The certainty is that even for thrill seekers, it will be an interesting and unpredictable ride with lots of lessons learnt and no doubt, fortunes won and lost.
As Donald Rumsfeld said: "There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know."