Real estate problems run deeper than brexit, signaling U.K. slowdown

While some investors have been quick to blame next week’s Brexit vote for the slowdown in U.K. commercial property sales, there are growing signs the market will stall, whatever the outcome of the referendum.

Investors spent 16.9 billion pounds ($24.4 billion) on offices, stores, warehouses and other commercial properties from January through May this year, according to Real Capital Analytics Inc. data. That’s down from a record 33 billion pounds in the same period last year and ends three years of rising sales.

Aviva Investors, the asset management unit of Aviva Plc, last week lowered its forecast for total annual returns, a measure of values and rental income, from British real estate to 6.6 percent from 8.7 percent. In addition to Brexit, the possible re-emergence of Europe’s debt crisis, a faster increase in U.S. interest rates than currently expected and a decline in Chinese economic growth were among the risks cited by Richard Levis, a global real estate analyst at Aviva.

“The U.K. commercial property market has seen unprecedented growth in transactional volumes over the last five years which has led in part to a sustained rise in prices,” Adrian Benedict, investment director for U.K. real estate at Fidelity International Ltd. said in an e-mail. “The pace of price rises was always expected to slow and it is coincidental the slowdown has come at the same time as the EU referendum vote.”

The annualized rate of price growth for U.K. commercial real estate peaked at 12.95 percent in October 2014 and has fallen every month since to a rate of 5.91 percent in March 2016, according to MSCI Inc. data. That’s led investors to start focusing on buildings where rents can be increased instead of relying on price rises.

source: Bloomberg