• South West investment as a whole totaled £407m in Q2 2016, which was 10% down on the previous quarter but still 28% above the five-year average.
• Investment into South West offices totaled £137m for the quarter, which was 9% less than Q1 2016 (at £150.3 million).
• Across the UK, Q2 2016 saw a marked decrease in investment volume as the Brexit Referendum approached. At £9.8 bn it was down 18% from Q2 2015 (£11.9 bn). Compared to the same period last year it was down 45% (£17.8 billion).
The second quarter of 2016 saw a marked slowdown in office investment activity from Q1, caused by nervousness around the result of the Brexit. Large numbers of funds slowed or even completely stopped their acquisition programmes as they saw a need to hold cash to deal with the increasing levels of redemptions they were facing as the referendum approached.
In the immediate period post-Brexit, following the initial shock affect on the financial and property markets, we are beginning to see signs of a return of confidence in the sector.
As a result of negative publicity towards commercial property, several of the largest retail pension funds were forced to halt redemptions in order to protect their liquidity. We have already seen an announcement from Aberdeen Asset Management that they have re-opened the door to investors to withdraw their funds, albeit in order to prevent a flood of withdrawals they have reduced the value of their funds by 17%. It is likely that other funds will follow suit shortly. Once the market sentiment recovers and the flow of redemptions slows then these funds should recover their values.
After a brief period of catching their breath post-Brexit, a large number of funds remain active investors and we have seen healthy demand from property companies and private investors. Some overseas investors were initially cautious about the market but we are seeing an increasing number looking to buy now attracted by the shift in exchange rates.
Whilst some transactions have fallen away since the referendum, the majority remain on track. The most significant transaction to happen post-Brexit was the sale by British Land of the Debenhams store in Oxford Street London for £400 million to an overseas investor. The sale reflected a net initial yield of 2.6%.
We anticipate that whilst prime properties should hold their values, there may be some short term price adjustments of between 5-10% for more secondary properties. However, we believe prices should correct in the latter quarter of 2016, as long as the occupational market remains strong while the market becomes more acclimatised to the UK’s decision to exit the EU and the Government puts the process in motion.