Research from property consultants JLL shows that the overwhelming majority of investors (73%) intend to be net purchasers of UK commercial property over the next 12 months, despite the vote to leave the European Union.
JLL’s UK Investor Confidence Index also highlights that most (58%) also intend to make no changes to their strategic weighting to the asset class, with more intending to increase (27%) rather than decrease (15%) their exposure to commercial property.
Mathew Atkinson, director in JLL’s capital markets team in Leeds, commented: “These results demonstrate that, despite the considerable issues around Brexit, the appeal of commercial property as an asset class remains undimmed – hardly surprising when yields for prime property with strong tenant covenants still attract yields of at least 4-5%, depending on location. To put this into perspective, average corporate bond yields are now at 2.19% and 10-year gilts at a little over 0.6%.”
JLL’s survey also showed that most respondents expect total returns from UK property to fall to around 5% after several years of record results. This would still be significantly better returns than for most other asset classes.
Atkinson added: “However, the strong survey results may also be based on the market assuming that the UK is more likely than not to retain access to the single market, with only 15% of respondents arguing that a so-called ‘soft brexit’ was unlikely. If the departure from the EU turns out to be ‘hard’, with the UK losing access to the single market, around 51% expect a ‘moderate decline’ in capital flows into UK property.
“We have seen no evidence of forced sellers in Yorkshire, and aside from a handful of UK sales resulting from one-off stress on the retail funds, we expect a broadly balanced market providing the wider economy remains stable.”
The uncertainty resulting from the vote has forced down JLL’s Confidence Index to the lowest level since Q3 2011. However, it should be noted that this remains considerably above the levels seen in late 2008.
