Britain’s plan to leave the European Union will, no doubt, present many challenges but also many opportunities. This holds true across multiple spheres, not least in the UK real estate market. We believe that the likely short-term volatility may open up some attractive investment opportunities in property markets where pricing has recently been overstretched (such as Central London), while other more defensive sectors – such as private rented residential and long lease property – will continue to offer attractive income streams for pension funds and other institutional investors.
We expect that the ultimate outcome of the Brexit negotiations is likely to be one that meets the interests of both the UK and the EU, so we anticipate a ‘soft’ Brexit scenario in which the UK retains access to the single market, perhaps with compromises. This, coupled with potentially favourable trade deals with non-EU partners, means that the medium to long-term economic outlook remains benign, supporting demand for real estate from occupiers and investors alike.
In the short term, firms will likely put some hiring and investment intentions on hold, while consumers may decide to cut back on spending, particularly if goods become more expensive as a result of sterling’s recent depreciation. However, while the economy may lose some momentum, it is important to note that the vast majority of forecasters expect that Britain will avoid a recession and that economic expansion, albeit weak, will continue in the near term (real GDP is forecast to rise by 0.7% in 2017, according to Consensus Economics).
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