While Brexit is undoubtedly an emotional issue for many people, those who manage to put aside strong feelings and look at the hard facts of economics can take reassurance from the fact that the UK is clearly still seen as being great value and an attractive target for overseas investors.
Sterling’s loss is a great gain for international buyers
Holidaymakers may be disappointed that they’re getting less for their money, but the good news is that the reduced value of the pound makes it much easier for people from overseas to buy UK-produced goods and service, visit the UK on holiday and invest in the UK. Arguably there is nowhere this fact is more evident than in the UK property market and, in particular, the UK commercial property and student property investment markets.
Overseas buyers have long had an appetite for UK commercial property
The UK property market is one of the most active property markets in the world, but, in spite of the fact that there has long been a chronic shortage of residential property, it is the commercial property market which has benefited most from international investment. This is understandable given that there is a significantly different relationship between landlords and tenants, making commercial property somewhat lower maintenance when compared to its residential counterpart and therefore often a more appropriate choice for “hands-off” investors. According to research from international real estate firm JLL, during the (election) year 2015, overseas investors accounted for 48% of all commercial property transactions in the UK. In 2016, this increased to 51%, some of which, admittedly, would have been completed prior to the referendum, when many people believed that Remain was the only feasible outcome. In spite of some of the dire predictions in the press, 2017 looks set to continue in the same vein.
The Americas retreat but Asia and the Middle East advance
In 2015, buyers from the Americas accounted for 32% of transactions but last year that dropped to 17%. By contrast, activity from buyers in Asia Pacific (particularly China) jumped from 17% to 28% and there was also an upsurge of interest from the Middle East. While transactions such as the high-profile sale of the Cheesegrater in London (to a Chinese tycoon for £1.5B) are the ones which grab the newspaper headlines, it’s worth noting that there is a substantial level of less publicity-grabbing investment throughout the UK, especially in the north of England. Part of the reason for the success of the Northern Powerhouse initiative is because of financial input from overseas investors, again particularly from China, much of which has been focussed on property investments in Manchester.
The outlook for 2017 and beyond
While the UK’s commercial property market has almost certainly benefited from the depreciation of Sterling, it’s worth remembering that the UK was attracting overseas investment long before the pound fell and hence it seems reasonable to assume that interest will continue as the pound rises, although affordability issues may begin to be seen. In simple terms, as long as the UK continues to demonstrate that it can provide a good return on investment, it will continue to attract investors from around the world.