Brexit puts third of commercial property deals in doubt

Concerns linger over pricing but bulk of transactions go ahead

24 JUL 2016 by: Judith Evans

A third of commercial property deals under way at the time of the EU referendum have collapsed or are under renegotiation, but the majority are going ahead as planned.

A series of high-profile deals fell through in the immediate aftermath of the vote to leave the EU. These included the expected £465m purchase of Cannon Place, a 389,000 sq ft City of London office scheme, by Germany’s Union Investment, which had been in advanced talks to buy the building.

However, 64 per cent of deals — when measured by the value of assets involved — are proceeding as normal, according to Cushman & Wakefield, a property agency that tracked £8bn of deals in progress at the time of the June 23 vote.

“The Brexit vote unfurled a high degree of short-term uncertainty, but as the dust settled, a lot of people came back to vendors and said ‘We’re going to try and chip your price by 10 per cent’,” said Jason Winfield, head of investment at Cushman & Wakefield.

“Most of those vendors are saying ‘No, we don’t think the fundamentals have changed’. Many commentators were expecting this to be much worse than it actually is.”

Commercial property was one of the sectors most immediately affected by the Brexit vote, as retail property funds holding more than £15bn of assets were forced to suspend trading when investors rushed to make withdrawals. Investment into the sector was already depressed in the run-up to the vote.

Further ahead, there are still concerns that the vote will cut into pricing, while Land Securities, the UK’s largest listed property company, warned on Thursday of “subdued” demand from occupiers.

The Cushman data, which is mainly focused on offices and shopping centre deals, shows a fall-through rate higher than the normal 5 to 10 per cent, said Mr Winfield.

The failure rate was higher in the regions, where 59 per cent of deals were going ahead, than in London, where 67 per cent were proceeding.

The market was also cheered this week by news that Wells Fargo, the US bank, had spent £300m on a new European headquarters in London.

Across the UK, 11 per cent of deals were being renegotiated or the properties had been put back on the market, while 16 per cent had been abandoned, Cushman found.

The most vulnerable deals were those involving buildings in less popular “secondary” or “tertiary” locations, or those with only a short time left on an existing lease, said Mr Winfield.

“You would expect short-term lease events and economic uncertainty to create a bit of pricing drift,” he added.