On Thursday 23 June the UK population voted by 51.9% to 48.1% to leave the European Union (EU). Turnout was 72%, with a record 46.5 million people eligible to vote, causing Prime Minister David Cameron to resign. In voting to leave the EU, the UK has made probably its most profound economic and political decision in 60 years – a decision seemingly reflecting our identity as a nation, our values, our dissatisfaction with the EU economic and legal model, a rejection of integration and globalisation, and dissatisfaction with ‘the establishment’. But what happens next, and what does it mean for real estate? In this note we sketch out some of the big issues to watch.
Since our last release of yields in early March, the sector has had to contend with the broader issues of the impending EU Referendum and the Government’s failure to exclude the multiple landlord from the 3% SDLT surcharge. That said, Brexit appears to be having little or no effect on investment volumes with the overwhelming demand/supply imbalance in the housing sector outweighing concerns regarding a possible Euro exit. The pattern of platform creation continues with the 3 way partnership for the East Village development pipeline and Elephant & Castle between Delancey, APG and Qatari Diar having completed in March. UK institutions remained active with M&G, LaSalle and Hermes all securing further schemes over the quarter in London, Birmingham and Manchester. Indeed, Birmingham seems to suddenly be flavour of the month with Rockspring/Atlas also forward funding Pershore Street. Whilst we have kept our yields unchanged over the quarter, the outlook remains positive and we expect to see a trend towards forward funding deals to mitigate the SDLT increase.
International capital has been very busy in the leisure sector and Fund appetite continues, with pricing being pushed by long income, inflation tracking investments. All sectors of the leisure industry are releasing the purse strings around capex and operators are re-investing in their existing estates. The race for space of a surging trampolining sector is driving rental levels upwards. Garden centre investment activity has grown rapidly in the last 18 months. CBRE has been actively involved in recent major transactions.
Commercial property prime rental growth at post crisis high Rental values for UK prime commercial property grew by 1.4% in the first three months of 2016. The average prime yield for All Property remained relatively flat in the quarter, up slightly from 5.3% to 5.4%. All Property estimated capital values grew by 1.2% during Q1. Prime Industrial property led the way, with rental growth increasing to 2% in the first quarter, the third steepest quarterly increase the sector has seen since 2001. Rental values for prime Central London offices increased by 2.6% over the quarter, driven by the strong performance in the City (4.6%) and Docklands (5.4%).
CBRE Long Income Index – Negative Q1 return of -0.42%, due to changes in stamp duty. Hotels outperformed with growth of 1.21% Lee Bruce interviews Paul Jayasingha from Willis Towers Watson covering The Long Income market, Europe and Infrastructure. CBRE Long Income Index – Q1 performance, valuation weightings and sector specific index figures, offering transparency in the market.