International property specialist's CBRE have released a new report predicting that 2017 would see UK real estate investment sink to still lower levels as economic fears and instabilities continue to bite.
According to the most current data, CBRE estimates total UK property investment for 2016 to be £49 billion. This is significantly down on the previous year, which saw record highs in UK real estate investment. Compared to 2015's £69 billion poured into UK properties, 2016 represents a 30% drop in investment.
The property services advisory firm identifies several key factors in its report as causes for the sharp fall in investment. Fears and uncertainties about Brexit, concerns about the state of the world economy, and instability in the financial markets of China all played a role, the report suggests. The uncertainties surrounding the UK's withdrawal from the European Union, termed as the “Brexit Effect,” is identified as a particularly prominent factor by the report. The impact of this on the market, CBRE says, took effect almost instantly after the date of the referendum was announced in February of last year.
Many of these factors will likely continue to impact the UK property market or even intensify over the course of the year to come. As such, the report predicts even lower levels of investment in 2017, as well as low and decidedly income-reliant returns of 1.1% as a result of shrinking capital values.
The situation in Europe will likely play an important role in the performance of the UK property market going forward, CBRE believes. A stable Eurozone and positive progress in the UK's negotiation of the terms of its exit from the EU could do much to stimulate the UK market and facilitate a stronger performance. On the other hand, the reverse of either of these situations – a less stable Eurozone or more difficult, less amicable Brexit negotiations – could mean that the UK real estate investment market comes under even more pressure than the recent report has predicted.
With general elections approaching in major European nations and uncertainty still hovering over the Italian banking sector and its role in the Eurozone, there are many unknowns in the Europe situation at present. As such it is very difficult to predict with confidence which way things might go.
By dropping profoundly in value after the Brexit vote, the pound has done much to stimulate overseas interest in UK properties by offering an effective discount. CBRE identifies this positive point in its report, though also points out that this has caused the number of UK sellers to drop as many hope to wait until things improve before parting with their assets.
Whatever happens, it is likely that the current situation will change things up in the UK market quite significantly. Already, one example of change seems to be tentatively rearing its head. Properties in outer London outperformed their inner London properties in capital growth last year thanks to strong domestic demand, potentially marking the beginning of the end of the profound dominance that inner London has enjoyed over the past ten years or more.
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