Around £8bn of the £14bn+ worth of UK commercial property deals in the market on the day of the EU Referendum have now completed, according to research from Cushman & Wakefield.
With 54% sold, a further 15% under offer, and 25% withdrawn that leaves just 6% of deals (by value) still in the market – and paints a clear picture of the impact of the Brexit vote on deals ‘live’ on 23 June 2016. More than 200 office, retail and industrial assets have transacted, accounting for 45% of total investment activity in the second half of 2016.
Jason Winfield, Head of Investment Agency, UK & Ireland, said: “By tracking deals from before the nation went to the ballot box in June we have gained a unique picture of how the market has subsequently reacted to the vote for Brexit. Deals have taken longer to complete and a greater proportion have been withdrawn but, on the flip side, values have held up remarkably well reflecting the UK’s strong fundamentals. That said, we do not yet know the full implications of the UK’s decision to leave and how that will manifest itself in occupational markets.”
Nick Allan, Partner and Head of Cushman & Wakefield’s Bristol Investment Agency team, commented: “The recovery of pricing in the investment market has been far swifter than many commentators anticipated. The lack of supply of suitable product since the summer has led to inevitable competition between investors for the limited stock made available and we have certainly seen that for prime product yields are back to pre-Brexit levels.”
Key deals which have completed in Bristol, post-Brexit, include the sale of 3 Glass Wharf by Salmon Harvester. The building which will be let on a 25 year index linked rent to HMRC is understood to have sold at around £75m reflecting a yield of sub 4%.
Deal progression
In the immediate aftermath of the result, progress on larger lots (£100m+) lagged well behind smaller (sub £20m lots) by three months. While greater due diligence and delay might be expected even under normal trading conditions, it is clear that investors were taking more time before signing off on significant investments. By November, progress for larger lots had caught up and has since matched sub-£20m deals. Deals in the £20m to £99m range continue to lag.
Nigel Almond, Head of EMEA Capital Markets Research at Cushman & Wakefield, said: “Typically you might expect transactions to take three months to go under offer – since the Brexit vote it has been taking up to five or even six months for deals to progress this far. The lower proportion of completed deals in the mid-range can be partly explained by a number of shopping centres which are currently under offer and we expect those to be sold in the near future.”
Long income in demand
Cushman & Wakefield’s analysis shows a clear polarisation by weighted average unexpired lease term (WAULT). Close to two thirds of assets with a known WAULT greater than 10 years have now completed, compared to fewer than half of assets under a decade. In a market characterised by uncertainty it is clear that investors are focused on secure long term income.
Average discount to offer price just 3%
Despite the delays, commercial property values have held up well. The average discount between offer price and sale price is just 3% – a stark contrast to the plunge in values predicted by many commentators following the EU Referendum result. Assets located outside London have incurred an average 3.9% discount compared to a 2.4% fall in London. Retail assets (in particular high street shops) have proved easiest to sell but have attracted a larger discount and shown a higher degree of variability in pricing. Offices have seen the second largest discount, with those outside London attracting a larger discount and higher degree of variation compared to London. Industrial assets – such as the warehousing which underpins modern supply chains – have, on average, sold above offer price by 1.3%.
