The Real Deal New York

UK property values are down, but no one knows how much

Estimates range from 2.8% to more than 5%

August 24, 2016 09:21AM

London office skyline

London office skyline

How much of a toll did Brexit take on the U.K.’s commercial property market? Top question, lads.

With little data to go by and few deals since the June referendum, brokers and landholders are relying on educated guesswork to figure out on how much property values have slipped, with ranges running from 2.8 percent to 5 percent or more.

Data firm MSCI, for example, estimated a 2.8 percent drop while property broker CBRE said it believes U.K. real estate values dropped 3.3 percent in July. Norway’s sovereign wealth fund came up with a 5 percent figure, as did Aberdeen Asset Management, which initially said property values were down 17 percent, according to the Wall Street Journal.

Complicating the calculations is the fact that deal flow has sputtered since the June vote. There have been $2.9 billion worth of deals in the U.K. since then, compared to $9.5 million during the prior year period, according to Real Capital Analytics.

Of the deals that are getting done, discounts have ranged from 2 percent to 19 percent off the prior value. Asset manager Aberdeen sold a central London building to Norway’s oil fund for $163 million, nearly 20 percent less than the pre-Brexit price.

“Valuation is one of those funny things, a combination of art and science,” said Fiona Haggett, U.K. valuation director at the Royal Institution of Chartered Surveyors. “It’s all about understanding your market.”

She said when valuing property in an uncertain market, “you must use all the information you’ve got,” which is challenging these days since most of the information predates the referendum.

Following the vote, Norway’s sovereign fund hired Cushman TRData LogoTINY to assess its real estate portfolio, and later determined its value dropped 5 percent based on a “best estimate.”

Even before Brexit, investors were bracing for a downturn in the U.K.’s commercial real estate sector. Following the vote, shares of U.K. landlords plummeted and some asset managers stopped trading their real estate funds. Firms like CBRE and JLL’s stock prices took a beating amid concerns over the companies’ European business. Meanwhile, luxury residential prices in central London grew just 0.1 percent year-over-year in May, the lowest growth rate since October 2009 — setting off speculation that New York real estate could benefit from London’s slowdown.

The Real Deal earlier this summer took a look at how the Brexit might benefit investors of New York City real estate. [WSJ] — E.B. Solomont