The United Kingdom, and in particular London, has long been seen as a safe haven for foreign real estate investment. A stable political environment, consistent capital growth, high rents and an active market contributed to an attractive investment destination. With the vote for ‘Brexit’ in the recent referendum, the British electorate has created instability and uncertainty and as a result, both risks and opportunities.
The dramatic fall in the value of the pound in recent months has been a boon to foreign tourists, and UK retailers and hoteliers. Office for National Statistics’ data shows a 2% year on year increase in tourist spending in August, and a 4% increase in visitor numbers.
Certain parts of the UK manufacturing industry have also felt the positive impact of Brexit - the devaluation of sterling has made UK exporters more cost-competitive. UK unemployment remains low at 4.9% and residential property demand remains strong.
Pressure is starting to show however with inflation jumping to its highest level in two years and that, coupled with signs of a decrease in wage growth, has led to economists warning of a squeeze on living standards.
The real estate market has also shown signs of retreat. Data released by CoStar and reported by the Financial Times revealed that investment in the UK sank to its lowest level in four years during the quarter after the Brexit vote. Stock market investors are also showing signs of nervousness with UK real estate investment trusts trading at 13 per cent below their pre-Brexit prices.
Our own experience of the London market reflects the general statistics, but we are now also seeing more positive indicators. Many of the transactions that were put on hold in the immediate aftermath of the Brexit vote, in some cases where funding was completely withdrawn, are now back on stream as the initial shock waves recede.
The reality is that Brexit has not happened, and won’t happen for at least two and a half years. For as long as the government keeps us in suspense as to what Brexit really means, the wheels of industry keep turning, shops' tills keep ringing and there are plenty of deals to be done. The low value of the pound presents opportunities for foreign investors that UK investors do not enjoy, and for many investors that value may offset the perceived risk. There will be jolts along the way, not least when Article 50 is triggered (or ‘if’ given yesterday’s decision of the High Court giving MPs a vote on triggering Brexit), but until then the message from all quarters appears to be that the UK is very much open for business.