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Investment demand repels post-Brexit fear factor

03 September 2016

With Brexit leaving the UK economy in a state of uncertainty, Malcolm Grayson and Geoff Gibson, of leading East Midlands commercial property specialists Andrew and Ashwell, offer reassurance on market prospects.

The UK commercial property market has seen a significant drop in confidence and investor demand following the Brexit vote, according to the Royal Institution of Chartered Surveyors’ second quarter market survey. Both the investment and occupier sides of the market have been affected by the change in sentiment and both rent and capital value expectations are now in negative territory, with London seeing the steepest decline.

But despite tumbling prices in the capital, commercial property specialist Andrew and Ashwell confirms the strength of investment demand for commercial property across Leicestershire.

Malcolm Grayson, a Director in the long-established Leicester firm, remains confident in the local commercial property market, which has been showing robust demand both pre and post Brexit, as bricks and mortar present a tangible area for growth over other areas of investment.

“While the London investment market is experiencing a lack of confidence from overseas investors, the impact is less significant in the midlands as the market is more balanced toward UK investors. In addition, pre-Brixit property values in the midlands were considered fairly secure and growing as compared to a more heated market in the capital.

“With interest rates falling, the volatility of stocks and a poor return on bonds, we are seeing continued demand for commercial property as an investment. Yields are holding firm as investors compete strongly for very limited stock, occupier demand is still very robust and there is also more demand from private pension funds.”

Andrew and Ashwell has been actively selling and buying investments over the last six-month period, with £9 million sales completed or under offer and a further £9 million worth of acquisitions. The firm has on-going investments going to market, as well as instructions to acquire investments.

“Most of the investments are local, within Leicestershire, with the smallest lot being £200k and largest £2.55 million, but we have also been involved in the purchase of retail property in Cumbria and Dorset. Yields are typically around 7% to 7.5% but vary from 6% to 12%, depending on size, risk and quality.”

Most transactions, said Malcolm Grayson, have been in the office sector, in prime locations around motorway junctions.

“For instance we have had one unit at Lutterworth, near M1 Junction 20 let to Lavendon Plc for £2.55m and another at Meridian Park close to the M69 and M1 Junction 21, for nearly  £1m. We have also purchased offices on nearby Grove Park.

“There is plenty of interest in buying and selling, with sales including a mix of single let industrial units sold for £1.5m and a block of seven small industrial properties sold (long leasehold) on Abbey Business Park for £200,000. We have also acquired retail property around the UK via auctions and we currently have retail property under offer.”

Geoff Gibson at Andrew and Ashwell explained: “In recent years investment yields have fallen to pre-financial recession levels and in some cases below, largely as a result of excess demand from investors over supply.

“Demand has been fuelled by a significant amount of available cash, both domestic and international, partly a result of low interest rates on deposit and other accounts and the availability of funding. The supply of available investments has been affected by a reduced new development programme and many owners’ reluctance to sell, largely due to the lack of alternative investment possibilities.

“Most investors have been looking for relatively safe opportunities in terms of good quality tenant covenants and longer Lease commitments, and this is also where the funding is most obtainable. However, there has been relatively good demand for investments with shorter leases where purchasers believe that the building and its location offer good quality, and would likely re-let if it became vacant.”

Any impact on the commercial investment market, said Geoff Gibson, has tended to be in respect of larger lot sizes, as well as the London and South East hotspots.

“The problem remains one of uncertainty, as investors are just not clear on what the future holds in terms of UK and international economic activity, interest rates and currency rates.

“But as we appear to be in a low interest rate economy for the foreseeable future demand is expected to remain strong, as investors look for relatively higher returns compared to other forms of savings and investments.”