Thursday 8 December 2016

Brexit effect hits UK property values

Published 06/11/2016 | 02:30

The MCSI IPD Index has recorded its first negative return since 2009
The MCSI IPD Index has recorded its first negative return since 2009

The so-called 'Brexit effect' has hit UK fund returns with the latest MCSI IPD Quarterly Property Index showing that UK property recorded a total decline of 1.2pc quarter-on-quarter in the three-month period to the end of September 2016. The finding is significant in that it represents the first negative return for the index since 2009. Capital values declined by 2.4pc in the last quarter the index shows.

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Referring to the latest figures, senior real estate analyst at Goodbody, Colm Lauder noted that they were "broadly in-line with expectations following the decline of 3.6pc recorded in the latest IPD UK Monthly Index.

Sector or segment specialists experienced the biggest fall with a quarterly decline of 2.3 quarter-on-quarter.

This fund type is heavily weighted towards London office specialist funds where values have borne the brunt of the early Brexit re-assessment of capital values.

Central London office values declined by 2.9pc as yields expanded in line with evaporating investor confidence. Rents have so far remained steady, even posting some growth, showing what Lauder described as "an eerie similarity to what happened in 2007 and 2008 when rents continued to grow for nine months while capital evaporated".

Lauder noted long income, long-let alternatives had risen in popularity in the aftermath of the Brexit vote.

He said: "The out-performance by sectors perceived as lower risk shows the stifling uncertainty that investors face across the traditional property sectors. Healthcare assets are viewed as a lower risk because of their longer lease terms than for the norm combined with secure income streams.

"With such uncertainty surrounding Brexit negotiations, long-income property types will remain popular with investors given that traditional sectors can foresee further re-pricing until clarity emerges for the UK's status."

Sunday Independent

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