The UK has voted to leave the European Union, so now is the time to look to the future with a cool head. Much has been written about “why” and “what if”, but now we need to focus on “what next?”
In the short-term, uncertainty and market volatility will likely continue. Companies and individuals alike may well put spending and investment plans on hold, leading to reduced occupier demand and reduced transaction volumes in the property market.
There will, clearly, be big challenges ahead. But there will also be opportunities. Real estate is a long-term investment and those who are willing and able to take the long view may well find attractive value as a result of any short-term dislocations.
It is important to remember that pension funds, insurers and others still have money to invest and that property continues to look attractive relative to government bonds. Indeed, arguably it has become more attractive, given the tightening in bond yields after the referendum and the expectation that interest rates will now stay low for even longer.
This view is backed by what we are already hearing and seeing in the market. Understandably, there will be buyers pulling out of some deals. But, encouragingly, anecdotal evidence to date suggests that there are others behind the scenes who are willing to step in and take advantage of a potential opportunity. There are also already some early signs of interest from foreign investors for whom UK property has become more attractive owing to sterling’s depreciation.
Some sections of the market will be more affected by the post-referendum storm than others. Offices in central London – the City and Docklands in particular – are likely to be the hardest hit (although that may, in time, present buying opportunities in what is currently a rather expensive-looking segment).
On the other end of the scale, long-lease property is likely to demonstrate its defensive characteristics. The private rented residential sector could also hold up relatively well because people will always need somewhere to live, and because economic uncertainty is likely to encourage more of them to rent rather than buy.
Two months ago, on these pages, I wrote about the importance of careful portfolio construction and of being prepared for any downside risk – including Brexit. Now, clearly, that is more crucial than ever. Our business has been investing in property for more than 150 years, and has seen many challenges along the way. That experience has reinforced our decision to focus on core, income-producing assets with low leverage. A portfolio of such quality assets in good locations, diversified across both geographies and sectors, is well-placed to glide more smoothly over any waves in the market and to continue delivering stable, reliable returns over the long term.
It is important that we stay cool, calm and collected as we steer through the post-referendum storm, and that we keep our focus on the horizon. In the long-term, I am confident the UK economy will adapt and that the real estate market will reassert its strong position in the global investment universe.
Alex Jeffrey, chief executive, M&G real estate
