Brexit vote hits London office values

Britain has chosen to leave the European Union.

The value of office buildings in London’s main financial district fell in July, dragged down by economic unease following the UK’s vote to leave the European Union, according to property broker CBRE.

Capital values of offices in the City of London were 6.1% lower last month compared with June, the monthly index from CBRE shows. That was the biggest drop anywhere in Britain, where commercial real-estate values dropped 3.3%.

The UK property sector was among the hardest hit by the EU referendum in late June. Asset managers suspended trading in UK property funds after investors rushed to withdraw their money. Shares in property firms fell sharply.

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Even before the Brexit vote, property chiefs and brokers had been bracing for values to fall after the boom years that followed the 2008 financial crisis. Global investors poured money into UK offices, shops and warehouses in the hunt for returns amid ultralow interest rates.

It is reassuring to see rental values have held firm in the face of this heightened uncertainty

London, the most highly traded commercial real estate market in Europe, was a particular target for investors. After a sharp rise in values, analysts had warned values were due to slip.

“Capital value growth was always expected to falter at some point during 2016,” Miles Gibson, head of research at CBRE, says in a prepared statement.

“The Brexit vote has now crystallised that expectation.”

 Across London, office values were down 4.1% in July while rents remained stable, CBRE’s data shows.

Analysts have warned that London office rents could start falling due to Brexit, preventing foreign companies based in the UK from selling services in the EU. This could force firms to relocate to other cities in Europe like Frankfurt, Paris, Amsterdam or Dublin.

Capital value growth was always expected to falter at some point during 2016. The Brexit vote has now crystallised that expectation

Empty space left behind could push rents lower still, in turn making the office buildings worth less overall.

“It is reassuring to see rental values have held firm in the face of this heightened uncertainty, a positive sign that the UK occupier market remains strong, sustained by record levels of employment, and low borrowing costs” Gibson says.

July’s data is an early indication of the EU’s vote’s impact. After investors return from August vacations, September should reveal more about the impact Brexit has had on commercial real estate, Osmaan Malik, European property analyst at Swiss lender UBS Group AG, says in a note to investors last week.

“A number of property deals are being readied for September, which could prove a busy and decisive month,” he says.

– Dow Jones

This article originally appeared on www.theaustralian.com.au/property.