Since we produced our first report on the EU referendum in February, the bookmakers’ odds against a leave first drifted out from 9/4 (31%) to 9/2 (18.2%) but they have now firmed as the leave campaign has gained momentum and some bookmakers are now quoting 2/1 (33.3%). The opinion polls are still neck and neck and the Stay campaign has serious concerns that the pro-stay majority in the younger age groups are far less likely to vote that the pro-leave older age groups. With only a few exceptions, economic impact studies are continuing to warn of the detrimental impact of a Leave vote. From a property standpoint, the sectors most at risk if there is a Leave vote and if it has a negative economic impact are financial services, legal and accountancy and the tech sector. London is most at risk with Frankfurt and Paris and, to a lesser extent, Amsterdam and Dublin poised to gain from any financial service fall out and Berlin, Paris, Dublin, Amsterdam and Stockholm looking best placed to gain if the UK’s tech-sector takes a hit. Almost as many of our clients expect a lose-lose outcome as do a lose-win scenario. This is because of worries that without the UK, the EU could be subject to further fragmentation, a more anti-competitive policy agenda or even another euro-crisis.
The Referendum outcome leaves Britain unsure of what it has done and the world unsure of the wider implications. The complex task of unwinding and resetting the UK’s relationship with the EU is likely to take many years and dominate UK and, possibly, EU politics for the foreseeable future. There are implications for the whole of the EU not just the UK and these could be both positive and negative.
Downward yield movements becoming scarcer With prime yields across Europe having been on a downward trend for nearly four years, further falls are now becoming scarcer. Of 159 location/sector combinations monitored in Q1, only thirty-six saw yields move lower compared with an average of sixty-five each quarter through 2015. Notable market that saw yields fall in more than one sector over the quarter were Brussels, Prague, Amsterdam, Helsinki and Stockholm. Rental increases remain patchy, perhaps affected by heightened economic uncertainty in some markets. Office rents rose in Berlin, Dublin and the City of London, retail rents in Milan, Rome and Budapest, and industrial rents in Dublin, Stockholm and Istanbul.
•The level of foreign investments has increased more than twelve times in relation to the foreign investment level in 2009 which was around EUR 1 billion 1. •U.K. and North America have the highest growth rates of cross-border investors. •Investors from within the Nordic Region historically dominate the Nordic investment market. •Foreign investment flows are negatively and more significantly correlated with yield movements than domestic investment flows. Due to its impact and distinctive features, the increase in cross-border investments has experienced an increased interest. As a result, cross-border investments (i.e., foreign investments), has become an interesting topic in the academic commercial real estate literature How did the surge in foreign investments affect Nordic yields in recent years?
•Total retail investment dropped to €10.1 billion in Q1 2016 after the sustained bull run of transactions since Q4 2014. There was a fall in transactions in the rest of the commercial property market, but that was not as severe as in the retail sector. •A lack of investable stock has been a key factor in the fall in investment turnover. •Investors ‘risk-off’ attitude around the turn of the year when there was concern over economic growth, volatility in equity markets and rising bond yields was another factor driving both the decline in turnover as well as the lack of movement in secondary yields. •The UK and Germany, Europe’s two largest retail investment markets, saw a lot less retail investment than in recent quarters, although they retained those top two positions.