London and Scotland worst hit as commercial property sinks following Brexit vote
Despite positive affirmations that the property market would bounce back after the Brexit vote, the City of London and Scotland is continuing to suffer as cautious investors retreated from the sector.
A total of £8.7bn was invested into property in the three month to September as the average deal swindled to £13.6m – the lowest since the financial crisis back in 2009.
Investment in the capital dropped almost two-thirds from a year earlier, with investors buying £1.7bn of central London offices during the first quarter.
“Everyone has been sitting on their hands. They are not sure where the prices are, and a lot of properties have been withdrawn because the sellers were not prepared to accept the prices being offered,” said Mark Stansfield, managing analyst at CoStar Group, which issued the data. “Especially in central London, investment is down quite sharply.”
According to the collected data, a number of deals fell through and buildings were withdrawn from the market over the referendum period. These included an office building a 1 Wood Street in the City of London, which the German investors KanAm had been in talks to buy for £190m before the vote. The same office is now being marked again for £180m – 5% less than its pre-referendum price. A West End building was on the market for £90m but has since been withdrawn due to lack of interest.
However, it’s not only the City how has taken the hit. In Manchester a landmark office block was under offer at £175m before the June 23 vote, but subsequently sold to Deka Immobilien for £164m, a 6% cut.
Investment in Scotland has dropper 74% year on year to £191m amid fears of a second independence referendum. However, the recent acquisition of 75% stake in the £1bn St James Centre regeneration project in Edinburgh by Dutch pension fund APG will boost investment volumes in the fourth quarter.
Mr Stansfield said a series of large expected sales — including CityPoint tower, being marketed for £600m, and the headquarters of the law firm Pinsent Masons at 30 Crown Place for £220m — would also help the London market to recover. But he warned that “prices will likely continue to fall”.
In the third quarter, properties across the UK were selling for an average of 6 per cent below their asking prices, having sold for above the asking price for the preceding three years.
Average price falls in commercial property since the referendum have been moderate, albeit based on low transaction volumes. UK values dropped 3.3 per cent in July but the decline slowed to 0.5 per cent in August and 0.2 per cent in September, according to CBRE, the property agents.
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Written by: The Team | On: October 19, 2016