September 23, 2016

Keith Knutsson Discusses the Latest Effects of Brexit on the UK Real Estate Market

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate tagged , , , , at 12:30 pm by Keith Knutsson

Keith Knutsson

Keith Knutsson Brexit Vote

The world has been paying close attention to the effect that the Brexit vote is having on the European Union. The vote to leave has thrown the EU into economic uncertainty, and the financial service industry is starting to see a decline, which is the largest, according to data that has been collected and reviewed since 2009.

Housing and investment properties are currently sitting in a “grey” area, which is causing investors to be nervous for a rise in vacancy rates and cause building companies to put a hold on projects that are currently in the works. The concern for the possibility of an abundance of space is stopping developers from moving forward before the referendum.

Keith Knutsson explains that upwards of 2,000 real estate firms will most likely review their office-space requirements in the aftermath of the Brexit vote.  The uncertainty of capital-value growth had been expected to falter in 2016 prior to the vote and has been declining persistently. When it comes to commercial property in the UK, within the last month, the values have dropped nearly 4 percent.

How will this affect property funds?

Since the Brexit vote, three major property funds have suspended trading due to increasing fears for the UK property market. M&G, Aviva, and Standard Life have all made a move to steer clear of investors and pull their money for the time being.

An Aviva spokesperson was quoted saying:

  • “The extraordinary market circumstances, which are impacting the wider industry, have resulted in a lack of immediate liquidity in the Aviva Investors Property Trust. Consequently, we have acted to safeguard the interests of all our investors by suspending dealing in the fund with immediate effect.”

Keith Knutsson’s research shows, the announcement for these suspensions came only three hours after the Bank of England made a public warning of fallen UK real estate investment trusts. The Bank reported on the decline in shares because 75% of small business use commercial property as collateral for loans. They also reported a 50% drop in the commercial real estate market in the first quarter of 2016.

Think of it as a domino effect, once the first step is taken in the wake of mass panic, each part of the commercial property market will feel the hit in waves.

According to Laith Khalaf, senior analyst at Hargreaves Lansdown, said:

  • “It’s probably only a matter of time before we see other funds follow suit. The Problem these funds face is that it takes time to sell commercial property to meet withdrawals, and the cash buffers built up by the managers have been eroded by investors heading for the door.”

Interest rates are most-likely going to see a dramatic decline moving into fall to combat the effect of the Brexit vote on the market. The economic outlook is questionable during this time and some monetary policy easing is likely required to stop the downward spiral of the property investment market.

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