New research out today from Colliers International suggests that for long-term real estate investors (such as sovereign wealth funds and family trusts), the much-discussed European referendum could prove to be little more than a storm in a teacup. Short-term investors may be at risk, but for the brave, bargains may be had at the pre-referendum point of maximum fear.

Walter Boettcher, Chief Economist at Colliers International said: “If you look at polling evidence and bookmaker odds, the data suggests that a vote to remain in the EU is the most likely outcome. If this proves right, the UK property investment market will rally in Q3 2016 offering great momentum for the traditionally strong year end. While transaction volumes may not top the record £70 billion 2015, volumes would likely reach in excess of £55 billion.

“Already, signs of market instability are apparent, with key players slowing decision making.  This comes at a point in the property cycle where core prices are deemed high. With uncertainty building, opportunistic investors who choose to move at the point of maximum fear may find 50 bps of yield compression waiting on the other side of the June 23 referendum.”


Pre-referendum uncertainty the biggest hurdle for property, particularly short-term investors

Tony Horrell, CEO UK & Ireland, Colliers International said: “When it comes to the EU Referendum, the best outcome for the property market is to have as little interruption and uncertainty as possible. What is at stake is the long term attraction of London and the UK as a predictable and stable political and economic environment.

“As we wait for the outcome of the referendum, the fear and uncertainty created is having an unnecessary negative impact on the sector.  This is compounded by emotional and personal factors that are muddying the waters in what should be a business-led debate.”

Colliers’ report, entitled “Brexit: Logic dictates”, reveals that data from the time of the Scottish Referendum in 2014 suggests that UK regional occupier markets (especially financial) are more sensitive to domestic political uncertainty than London occupier markets, which are influenced far more by the global economy.  Likewise, UK and European-wide data also shows that national elections have had little direct impact on investment market volumes.  While it may be wishful thinking to conclude that property investors are driven solely by numbers and not politics, it is probably safe to conclude that long-term property investors, at the least, look well beyond short-term volatility, whether economic or political.

Bryce Stewart, Director, Colliers International, Scotland commented: “During the Scottish referendum, regional markets slowed to almost a halt followed by a relief rally immediately after the vote.  The ripple effect of the European referendum already feels painfully familiar.  It looks like short-term expansion plans are most at risk. We won’t know the impact on medium- and long-term occupation until we know the result of the referendum on 23 June.”

The report stresses that logic suggests long-term investors would probably adopt a ‘wait and see’ approach to new investment and would continue to hold long-term assets instead of selling into a weakened market.  

Colliers International’s annual Global Investor Outlook shows that property fundamentals and availability of finance always rank higher in investor deal calculus than sovereign risk, even during the period of Eurozone stress.

“Short-term investors, especially investors looking for projects with two to three year exits, are likely to be most sensitive to sudden changes in the political environment, especially if obvious investment exits no longer look obvious,” explained Boettcher.  

Post referendum: Back to the day job, or further instability?

If the UK votes to stay within the EU:

“If the Scottish Referendum is any indication, in the event that the UK votes to stay within the EU, a period of weakness prior to the referendum should be followed by a relief rally, particularly in the UK regional markets. Furthermore, the relief rally would come in Q3 2016, normally a quiet time due to summer holidays and could build sufficient momentum as to carry over into a strong year end which, given on-going low interest rates and the undiminished weight of global capital, suggests that 2016 could rival 2015 by total investment volumes,” concedes Boettcher.

In the event of a Brexit:
“A Brexit could lead to political fragmentation in the UK precisely at the time that political unity would be required.  Financial markets would consequently react with moves against the UK and result is a substantial impact on UK commercial property.  Very long-term investors may shrug it off, but short-term investors would not be able to plan exit strategies, hence their activity levels would fall,” Boettcher concludes.