Southhampton: JLL surveys reflect property industry thinking on the referendum

Surveys by JLL, investment management company specialising in real estate, which has an office in Southampton, have indicated that a half of investors and a third of occupiers are putting property decisions on hold while the results of the EU referendum are pending.

But though almost half of occupiers thought a vote to leave would lead to a review of UK space requirements and to greater caution, investors were more positive with more than half stating this would not lead them to make changes in strategy.

One of the surveys was of 31 respondents from international corporates, the other was of 53 major UK-based investors. The respondents were such as to have an influence on the market far beyond that suggested by their numbers alone, and their views provide a useful – if not definitive – guide to what key players in the property industry are thinking about the EU referendum.

The property market has seen some weakening of sentiment over the past few months, but this also reflects the slightly gloomier outlook for the world economy. Investment volumes fell back during the first quarter – they were 31% lower in the UK as a whole compared to Q1 2015, and 11% lower in London. However this is part of a wider slowdown in activity that was already evident towards the end of 2015.

The survey results show that, with the majority of the respondents believing that we will remain in the EU, and most continuing with acquisitions and disposals during the run up to the vote, transactions volumes are unlikely to fall even more dramatically in Q2. The higher proportion of investors putting activity on hold probably results from a greater ability to pause and restart acquisitions or disposals rather than a gloomier view of market prospects. 

None the less, the survey provides some evidence that occupiers are somewhat more negative about the potential impact of a Brexit on their business in both the short and long term. Almost half foresee a review of business space; a third think it will reduce leasing activity in the short term and lead to reduced headcount in the longer term, with only a slightly lower proportion thinking it will lead to more immediate reductions. Only six think it will have no impact on strategy in the short term, a figure that falls to four in the longer term.  

Investors are slightly more optimistic. Around two thirds foresee no changes to strategy in the short or long term as a result of a leave vote, with only one third expecting reduced allocations to UK Property. There is also a reasonable minority who think that in the long term allocations might increase. Thus it seems that while a vote to remain would provide more stability, the medium and long term economic and property market implications of a Brexit can be exaggerated. 

London Offices were seen as being by far the most likely to be affected. This may reflect an acknowledgement that financial services, which are important for London and the City market in particular, are most immediately vulnerable to Brexit. The most obvious issue is the potential withdrawal of “passporting” rights allowing London offices to offer services throughout the EU from London. Other international companies may be concerned about the risk that an out vote could lead to reduced access to the single market. 

However, the potential loss of financial services business is comparatively small. For many the advantages of London will remain mostly intact whatever the outcome of the referendum. Indeed, the Central London leasing market has proved resilient, with take-up in Q1 roughly in line with the 10-year average. This includes two City deals over 100,000 sq ft to financial services companies.

On the other hand, if the UK remains within the EU both leasing and investment volumes should recover strongly across all sectors over the remainder of 2016.