RE Exec on Brexit fallout: “Don’t be the last in the Tube”

The Brexit referendum may have contributed to a 43 percent drop in U.K. deal flow in the first quarter of 2016, but the bigger question for the RE industry: What comes next?

Britain’s vote on whether to stay or leave the European Union is weeks away, but U.K real estate deals could already be taking a hit—Q1 transaction volumes were down more than 40 percent from a year earlier.

In the first three months of 2016, transactions plummeted 43 percent to €14.3B, according to data provider Real Capital Analytics. RCA attributes some of the decline to Britain’s referendum, a process nicknamed “Brexit.”

Among investors, however, the recent weakness is not the biggest issue.

“It’s the period of uncertainty after a leave vote that investors are telling us is the real concern,” says Andy Pyle. A KPMG survey of global real estate investors at the MIPIM conference, found that 68 percent believed a Brexit would result in less foreign investment in U.K. property and property companies. Pyle noted that a yes vote could also affect U.K. lease demand.

Although the latest polls show voting split between remaining in the EU and leaving, several real estate investors and managers told PrivcapRE they expect Britain to stay inside the 28-nation bloc and that the vote will have little long-term impact.

Yet Stephen Saint-Leger, director of the London office of alternative investment consultancy Cambridge Associates, cautions that many investors adopted the same logic following the U.K.’s general election in 2015, predicting that a decisive win for the Conservative party would reduce uncertainty and bolster property valuations. Saint-Leger says that even with a Conservative win, the market softened.

A “no” vote, therefore, won’t necessarily presage a rebound, he said. “Real estate is priced for continuing easy financial conditions. And there’s not an easy hedge for U.K. real estate.” For the time being, Saint-Leger said, “All serious plans are on hold.”

And his advice to investors: “Don’t be the last in the Tube.”