The value of office buildings in the City of London fell by 6.1 percent in July compared with June, caused by heightened economic uncertainty after the Brexit fallout, according to property services firm CBRE’s monthly index.
Across the UK commercial real estate fell by 3.3 percent over the same period, while across the central London office market capital values dropped by 4.1 percent. But it was the City of London office market which was hit the hardest anywhere in the UK.
The fall in capital values, according to CBRE, was widely expected and dragged year-on-year growth down to 0.4 percent.
The retail sector was also affected and suffered a 3.6 percent drop, while the logistics sector was more resilient and only dipped by 2.2 percent, reflecting strong demand but weak demand, said CBRE.
“Capital value growth was always expected to falter at some point during 2016, as global economic uncertainty cast doubt on the likelihood of the strong growth seen in previous years persisting for much longer,” said Miles Gibson, head of UK research at CBRE. “The Brexit vote has now crystallized that expectation, though it is not the only driver of it.”
Rental values across the UK’s commercial property market were flat, with growth falling to zero percent from 0.2 percent compared to the month before. CBRE said the dip was caused by shops within the retail sector; rental values fell by 0.3 percent overall, and by 0.6 percent outside the south-east.
“It’s 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,” said Gibson. “It will be some time before we understand the full impact of the Brexit decision. The Bank of England’s base rate cut and more quantitative easing are likely to be supplemented by a similarly supportive fiscal stance in the autumn,” he added.
The UK property sector was among the hardest hit after the EU referendum on June 23. A number of asset managers suspended trading in open-ended retail funds after jittery investors rushed to withdraw their money, causing shares in property firms to fall sharply.