David Cameron has resigned as the UK Prime Minister with a new leader expected to be in place by October. The country now faces a two-year period of exit negotiations, as trade agreements are re-cast and elements of UK law are re-written.
While the London market fell steeply and the pound sank on the news, the consequences of the unprecedented decision are much harder to assess.
Chris Ireland, UK CEO of JLL, says: “Much will depend on the speed of negotiation, the wider political picture and whether a clear direction of travel and timetable for an EU exit is established early on.
“Even if it is effectively ‘business as usual’ for the UK in terms of trade and legislation until 2018, such a major change will inevitably create uncertainty in the economy and real estate markets. In the event of a well-managed exit these impacts will be largely confined to the UK,” adds Maxine Fothergill of Amax Estates.
For now, uncertainty will weigh heavily on companies, potentially leading to some leasing decisions to be put on hold or reassessed entirely. “In the short term we may see a weakening in occupier demand. The impact on rents may be limited by tight supply, but activity will be adversely hit while initial uncertainty about direction and timing continues,” says Ireland.
The UK’s property markets face an unsettled period. “The initial correction may be most severe but should be followed by an upturn as opportunities re-emerge in UK core markets and benefits of weak sterling are recognised,” says Ireland. “Sentiment and relative pricing will be key.”
In the residential sector, London is likely to feel the effects of ‘Vote Leave‘ most deeply. The Head of Residential Research at JLL says: “The interconnected trading relationship between London and the rest of Europe means the implications are more complex. This will exacerbate the uncertainty for London’s homeowners.” He suggests that any corrections in UK house prices will be mild, aside from prime London property, which is significantly more exposed.
And while investor sentiment is expected to remain subdued in the short to medium term, weaker sterling, however, could open up opportunities for overseas investors.
“Overall, there remains a large volume of Asian capital waiting to be deployed, including into Europe,” says the Head of Research, Asia Pacific Capital Markets. “A fall in the value of the pound against Asian currencies, will provide an entry point into the UK for overseas investors.”
While Brexit brings a new dawn for Britain, just how this will impact the country’s property sector for years to come very much remains to be seen.
