UK commercial property values could fall by an average of 4.9% next year and by up to 14.5% in the London office market, according to post-referendum forecasts from Real Estate Strategies.
According to director Malcolm Frodsham, a correction in prices is rational due to a higher risk environment with a wider range of possible outcomes.
“Investors should rightly demand a higher return for taking such risks,” he said.
“London would be expected to suffer a more pronounced increase in the risk premium, therefore the steepest fall.”
Frodsham, a former head of research at IPD, said he expected a very active property market, with high rather than depressed levels of investment turnover.
“We anticipate that these risks will be too much for more risk-averse investors who will put stock onto the market,” he said.
“While the short-term outcome of the referendum is adverse, real estate is likely to be better value for investors at some point in the coming months or years than it was before the referendum.
“The question, of course, is: when?”
| Previous forecast | Post referendum | |||
|---|---|---|---|---|
| 2016 | 2017 | 2016 | 2017 | |
| Total Return | ||||
| All Property | 5.7 | 4.7 | -1.6 | -0.2 |
| All Retail | 5 | 5.5 | 1.3 | 1.4 |
| All Offices | 6.6 | 3.4 | -7.7 | -3.6 |
| All Industrials | 5.9 | 4.9 | 1.6 | 1.2 |
| Central London Offices | 7.1 | 2.9 | -12.8 | -6.3 |
| Capital growth | ||||
| All Retail | 0.4 | 1 | -2.4 | -2.5 |
| All Offices | 3.1 | -0.1 | -10 | -6.4 |
| All Industrials | 1.2 | 0.1 | -2.3 | -2.9 |
| Central London Offices | 4.1 | -0.2 | -14.5 | -8.7 |
Sales under the spotlight
Following the result of the EU referendum, a number of sales are now in question.
Asset: Cannon Place, EC4
Owner: Hines
Price: £465m
Situation: Union Investments has withdrawn interest
Asset: Waverley Gate, Edinburgh
Owner: M&G
Price: £70m
Situation: TH Real Estate considering withdrawing
Asset: intu Bromley
Owner: Aviva Investors, Intu
Price: £260m
Situation: Bids pushed back a week
Asset: The Strand shopping centre, Bootle, Merseyside
Owner: Ellandi
Price: £38m
Situation: Scoop Asset Management pulled out
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