With Prime Minister Theresa May triggering Article 50 of the Lisbon Treaty on March 29, paving the way for a two-year countdown before Britain leaves the European Union, UK property investment professionals now have a timeline to work to.
Mike Sales, head of London-headquartered real estate investment management firm TH Real Estate, believes there will be no knee-jerk reaction from institutional investors and their managers in the first instance. “There is a general appreciation that UK real estate is late cycle and that pricing is elevated,” he said. “There are concerns. But these tend to be more focused on the occupier outlook and lack of good quality stock. We believe that, in the long term, the UK will retain its global position.”
Sales also said his firm would be taking a ‘business-as-usual approach,’ but once opportunities presented themselves, it would be “ready to pounce.”
As will Orion Capital Managers, the London-based pan-Europe opportunity fund manager. Chief executive Aref Lahham said the UK was once more on its menu of target jurisdictions for its fifth opportunity fund, Orion European Real Estate Fund V, for which it announced a final closing of €1.5 billion last month. “We see an opportunity in the UK with Brexit. We think the UK is going to go through a difficult time and there’s a bit of illiquidity in there now. That’s interesting for us because if you look at the medium to long-term, the UK is still a valid economy.”
Indeed, while pricing has yet to fall by any major extent, deal volume dipped as the referendum approached and dropped considerably after. Brokerage Cushman & Wakefield estimated the average post-Brexit price in the UK discounted by just 3 percent, even as the number of deals transacted dropped 41 percent. Orion’s expectation is that this reduction in deals will eventually lead to a drag in pricing during the investment period of its fund.
Mar 29: Article 50 triggered
Apr 1: Donald Tusk, president of the EU, to respond with draft of Guiding Principles for Negotiation
Apr 1 – Jun/Jul: The two parties to agree to the Principles
June/Jul – Dec: Negotiations on citizens’ rights and financial liabilities begin
Dec 2017 – Jun 2018: Talks on Britain-EU trading relationship begin
Jun 2018 – Mar 2019: Final ratification of the deal by EU