Brexit Triggers Drop in Commercial Property Fees
Major property specialist Savills has experienced a serious fall in its income from UK commercial transaction fees across the first half of the year. The drop, representing nearly a quarter of its income from such fees, is being taken as an indication of how much the market has slowed as a result of the EU referendum and subsequent public vote in favour of Brexit.
The first six months of 2016 saw fees from UK commercial property transactions generate £32.1 million of income for Savills. Over the same period last year, on the other hand, saw Savills collect £41.9 billion from such fees. This represents a year-on-year drop of 23%, which Savills says is largely the result of a “significant reduction” in transactions in the period surrounding the EU referendum.
Savills’ total pre-tax profits over the first six months of the year are down to £25.5 million, compared to £26.4 million in initial half of 2015. This is a year-on-year drop of 3%. This, the firm says, is down to a number of factors having “a negative impact on sentiment.” This includes the EU referendum, as well as other political and economic factors such as new residential property controls and the approach of the US presidential election.
The impact of the referendum on the property market was already becoming evident in the weeks leading up to the referendum date The market slowed in the approach to the vote as many buyers were put off by uncertainty and preferred to wait until the results were in. The vote in favour of leaving the EU was not the one that many commercial property buyers were hoping for, leading many to cancel plans to buy new properties altogether or to look for alternative assets in countries other than the UK. On the whole, Savills says, the UK property market has seen a drop in the total volume investment trading of more than a third (34%).
In central London, particularly, many of the major buyers who have lately been holding prominent positions are now remaining inactive. Savills reports that many funds are now instead “[remaining] largely on the sidelines” as a result of the EU referendum result. This has however been somewhat offset – though not entirely by any means – by wealthy private buyers becoming more active. The slowdown of activity from funds has given many such individuals, particularly those based in the Middle East, more room to obtain prime assets where they would once have been competing with those funds.
While many experts such as estate agents and commercial property lawyers say that they fully expects there to be “a period of relatively lower volumes as markets adjust to events,” there are also some reasons to be optimistic. The continued popularity of property as an investment choice, the recent cut in interest rates, and a continued trend of robust demand and limited supply in many of the world’s major cities including London are all reasons to remain positive.
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