UK economy yet to see full impact of Brexit

Most managers (like most of us!) thought the vote would be to remain and weren’t prepared for as many redemptions. Cash positions couldn’t meet the demand so most of the larger UK commercial property funds were suspended to trading temporarily – several months it turned out – to allow an orderly sale (rather than at fire sale prices) of sufficient properties to meet redemption demand and leave enough in cash for future.

Investment in commercial property has taken a significant hit, albeit not at the levels of the 2009 credit crunch.

And we all know that Brexit hasn’t even started seriously yet.

However, when the referendum struck, confidence was already at a low ebb because of the five per cent increase in stamp duty delivered in the March Budget.

So, the question for the commercial property sector is this – has this been merely a correction or something more fundamental?

Anecdotal reports tell of properties being sold at the same or only marginally reduced prices compared with pre-referendum values so the sector’s main funds, such as Henderson, Aviva and Standard Life, haven’t been affected as much as first thought – good news.

Aviva are the last major fund to reopen, further good news.

And so long as tenants are not spooked there is little reason for panic.

“Investors should look at the fundamentals,” Don Jordison, managing director of property at Columbia Threadneedle, told City AM. “Which in property’s case means tenants. There was a huge emotional component to the referendum. Property suffered because it’s such a tangible investment. But UK property is more than a few skyscrapers in the City. Our occupiers are in shops, shopping centres, retail warehouses, offices, manufacturing and distribution centres across the UK.”

That effect can be viewed in Birmingham with commercial property buoyant and big schemes such as Arena Central, Snowhill and Paradise seeing construction push ahead.

Cushman & Wakefield is equally sanguine, declaring: “The UK property sector has stabilised after the Brexit shock and while it is too early to say the market has fully corrected to an event that is still, after all, largely an unknown, sentiment and the immediate outlook have clearly improved.”

Going forward, the sector isn’t likely to benefit from growth in capital values, say most commentators. But one of its major fundamentals is as an income generator and, if tenants continue to stay put post Brexit, then yields should still be attractive at around six per cent maybe.

The past few months remind us that a lack of liquidity scenario can happen – albeit infrequently – but it is an asset class that should form part of most diversified investor portfolios, five to 10 per cent perhaps.

So, a cautious outlook for the sector but some overseas investment continues and attractive levels of income are positives also.

It is worth remembering that commercial property continues to offer diversification and income at a time when other asset classes don’t.

All to play for, then. Trevor Law is managing director of Merito Financial Services, chartered financial planners, based in Solihull. Email:tilaw@meritofs.com