UK investment volumes have plunged by a third this year as the bull run enjoyed for the past five years fades.
Just £10.1bn traded during the first quarter – a 31.8% decrease on the same period last year and a 27.3% decrease on the quarterly average for the past three years, research by Cushman & Wakefield shows.
The upcoming vote on Britain’s EU membership on 23 June is prompting buyers and sellers to stall. The International Monetary Fund has downgraded its forecast for UK growth in 2016 from 2.2% to 1.9% due to the EU referendum, with the Bank of England adding it expected “some softening” as a result.
Jeremy Beckett, senior director of investment at Cushman & Wakefield, said: “We would expect Q2 to follow Q1 as this sentiment continues.” However, he added that there was “significant potential for a very strong H2 in the event of a vote to remain in Europe”.
The Brexit referendum is just one of a number headwinds the industry faces, and the slowdown is not only UK-oriented. JLL research shows that EMEA volumes were down 20% year-on-year to €40bn (£32bn) in the first quarter, and globally were down 17% to $154bn (£109bn).
The IMF has also downgraded global growth for 2016 from 3.4% to 3.2%.
The collapsed oil price, slowdown in the Chinese and emerging market economies, a spate of retailer downsizings in the UK and the shrinking of investment banks as their profits are squeezed have all contributed to the slowdown.
The new figures come in the week that Citi put two of its long-standing directors in its European lending team on consultation for redundancy as it anticipates a continuation of thin volumes and tough credit markets.
The £500m purchase of Cannon Place, EC4, which was one of the largest ongoing transactions in the UK, also collapsed this week as Taiwanese insurer Fubon was refused regulatory approval. Seller Hines said it is now in discussions with an alternative buyer.
Proptech start-up We Are Pop Up fell into administration this week as it failed to find new equity to keep it afloat.
Concerns are also rife in the London luxury residential market that buyers are walking away from deposits and developers are offering large discounts for bulk purchases of flats.
Short selling of shares in residential developer Berkeley Group currently stands at 6.5% of those outstanding – the highest level since 2008.
C&W’s Beckett said: “Institutional investors from the UK and to some extent overseas are leading the cautious sentiment towards the market, being conscious of loss aversion in the short term. They don’t want to call it wrong and might rather invest and pay a stronger price in H2 when the [referendum] outcome is clear.”
Chris Ireland, UK chairman and lead director of JLL’s capital markets team added: “Although volumes have come off, there is still activity in the market and a number of investors are continuing to execute sensible investment strategies.”
This was borne out in a recent JLL investor sentiment survey, where 55% of respondents said that they planned to increase their exposure to commercial real estate in 2016. This demonstrates that investors are still seeing real estate as attractive relative to other asset classes in the current low yield environment.
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