Rupert Guy, Partner, Investment and Agency at KLM Retail, puts the events of the last few weeks in context and provides a brief insight into what owners and occupiers should expect next.
Well, it has happened. Everyone’s worst fears have come true and it looks like the UK is set to leave the European Union. Consumer confidence is at a low not seen for years, and we would be led to believe that the property market is in freefall as a result of the referendum. Or is it?
Firstly, it is important that we put the events of the last few weeks in context; there have been jitters in the residential market for some time, but is that the #BrexitEffect? As anyone who works in the industry knows, property is cyclical and the London residential market in particular was reaching the top of the cycle. In order to help cool the market a number of fiscal measures were introduced last year which hit London residential hard. In addition to this, The Chancellor targeted residential investors in 2016 , with a further 3% stamp duty surcharge on second homes and the removal of capital gains relief- so a full 28% now payable. The Daily Telegraph notes that to beat the budget, Q1 2016 saw a 75% year-on-year increase in buy-to-let purchases. Post implementation, we have seen the same group of buyers just as spectacularly fall away. The bonus, however, is that many are now active in the commercial private treaty sector and at auctions. The London retail market has not been immune either, with the luxury good’s market this year impacted by oil prices, economic events in China and conflicts in Europe and the Middle East.
As with the residential market, the issue of redemptions within the PUT’s is nothing new. Investors have been cashing out over the last 12 months witnessing up to five fold increases in monies invested. The market was very conscious that Q4 2015 valuations were full and that retail rental growth could not be relied upon to balance the returns required. The economic uncertainty that Brexit has brought about has been a healthy reality check for those in denial – values have to change. And while a strong demand remains from investors for assets below £10m, only well advised landlords who are willing and able to make swift decisions will gain an advantage over their peers. Meanwhile, behind the scenes at the coal face, retailer demand quietly continues and the number of locations where rental growth is being witnessed increases.
Over our 26-year history, KLM Retail has experienced similar peaks and troughs; from the first dot.com crisis, the departure of C&A, Littlewoods and Woolworths to the 2008 credit crisis. We have experienced the evolution of the market with owners and occupiers and played an active role in the market finding its trading level. From our experience we anticipate that what will undoubtedly gain momentum over the next few weeks within both the residential and commercial markets, are those investors and overseas retailers taking advantage of the currency exchanges rates. This will be the next chapter in the Brexit Story.