September is upon us so the spotlight will again fall on what action will be taken by the new Prime Minister on Brexit.
It’s clear from our latest JLL Investor sentiment survey that investors still see the attractions of UK property. Our survey of key clients showed that the overwhelming majority of investors (73%) intend to be net purchasers of UK commercial property over the next 12 months, despite the vote to leave the European Union.
It also highlighted that most (58%) also intend to make no changes to their strategic weighting to the asset class, with more intending to increase (27%) rather than decrease (15%) their exposure to the sector.
These results demonstrate that, despite the considerable issues around Brexit, the appeal of commercial property as an asset class remains undimmed – hardly surprising when yields for prime property with strong tenant covenants still attract yields of at least 4-5%, depending on location. To put this into perspective, average corporate bond yields are now at 2.19% and 10-year gilts at a little over 0.6%.
However, the strong survey results may also be based on the market assuming that the UK is more likely than not to retain access to the single market, with only 15% of respondents arguing that a so-called ‘soft brexit’ was unlikely. If the departure from the EU turns out to be ‘hard’, with the UK losing access to the single market, around 51% expect a ‘moderate decline’ in capital flows into UK Property.
Of course EU talks and triggering of Article 50 could take several years and until we have a better idea of what shape a Brexit will take and when it will be enacted it seems that investors may be keeping their powder dry.