For super funds and their advisers

Tactical opportunity in London property post-Brexit

It may not be the exodus of ex-pats that some real estate agents are saying, but the impact of Brexit on commercial property in London is starting to be felt. Ironically, there’s a cyclical buyers’ opportunity, according to global property manager TH Real Estate.

Nick Deacon, the fund manager’s ‘director of central London offices’, said last week: “We have already seen clear evidence of adjustments in pricing and sentiment towards the UK real estate sector, and in particular the London office market.

“However, the fundamentals of the occupier market are still positive with limited ‘ready to occupy’ supply. Capital that can target the market in early to mid-2017 should see considerably better future performance, enhanced by gearing and by sterling’s devaluation against the euro and US dollar for overseas investors.

“Although the structural impact of the Brexit vote will chip the long-run competitiveness of the City as a global financial centre, the cyclical opportunity is nevertheless there for the taking for any well-capitalised investor.”

TH Real Estate has produced a summary presentation for clients on the implications of Brexit. The manager is now talking about a “three-speed Europe” for property markets.

The first speed is core markets such as Germany, France, Sweden and Australia continuing an “advanced recovery”, but perhaps at a more modest pace. The second speed is countries like Spain, Portugal and Italy, for which the largest risk is probably the Italian banking system. The third speed is the UK, which has a “bleak” short-term economic outlook.
Christian Janssen, TH Real Estate’s head of debt, said: “Against the current uncertain backdrop, investments into real estate debt may provide some stability. Real estate debt investments deliver practically all of their returns through a consistent income stream. They also benefit from the borrowers’ subordinated equity position providing an inherent protective buffer to market value volatility.

“Real estate debt investments therefore have the potential to deliver a consistent and predictable income return with downside protection. Such resilience and reliability should be helpful and attractive to investors given the expectation of further uncertainty ahead.”

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