South East: Brexit fears slow international commercial investment

International businesses are postponing investment in Britain in the wake of EU uncertainty, a new paper by the Royal Institution of Chartered Surveyors (RICS) has revealed.

The RICS EU Referendum Paper which examines the pros and cons of the UK remaining in and exiting Europe includes new survey data showing that there has been a steady easing in international demand for UK office, industrial and retail property since the referendum was confirmed in Q2 2015.

The demand indicator among international investors for South East commercial property shows just 4% more members surveyed reporting a rise in interest from overseas investors rather than a fall over the past three months. In Q2 2015 the figure was at 17%.

Uncertainty caused by the EU referendum has been cited by 38% of RICS members working within the sector as the reason why major international retailers and other businesses have been nervous of investing in Britain.

Should Britain leave the EU, 35% of respondents in the South East felt that it would have a negative impact on the commercial property sector and only 9% said a Brexit scenario would have a positive impact on the commercial property sector. 

Meanwhile figures from the RICS UK Commercial Property Market Survey, Q1 2016, revealed that 29% of survey respondents in the South East expected rents to rise rather than fall over the next three months compared with 43% expecting rises in Q2 2015.

Across all commercial sectors in the South East 30% of respondents expected capital value to increase rather than decrease over the next three months – down from 52% expecting increases in Q2 2015. 

However, across the south the longer-term expectations are more positive with 71% more surveyors expecting commercial rents to rise rather than fall in the next 12 months and 70% more expecting capital value to increase rather than decrease over the next 12 months.

The EU Referendum Paper also shows that a range of key industries from residential housing to construction and rural have been hit by short-term uncertainty. Again in the longer term steady growth is still predicted across rural, land and built environment sectors.

RICS chief economist Simon Rubinsohn said: “There is no doubt that since the EU referendum became a certainty following the General Election last May we have seen a decline in interest from overseas investors in UK commercial property. At least in the short-term we know that international retailers and service providers are finding the UK market less attractive.

“But we need not view this as a negative, as a result of the market dampening, business rents are also rising at much slower rates, which suggests that we might soon be seeing more favourable conditions for entry and business growth.

“Moreover, it is interesting to see that despite the climate of uncertainty across all sectors surrounding the impact of Brexit, the long-term view is that we will continue to see the value of land and property assets increase, albeit at a marginally slower rate.”