London commercial property market hit hardest by Brexit

Following Brexit, a number of key metrics have moved into negative net balance in the Royal Institution of Chartered Surveyors' (RICS) recently published Q2 2016: UK Commercial Property Market Survey. With much of the decline attributed to London, is the capital set for challenging times during the second half of 2016?

Confidence lower in London

The RICS survey revealed that London’s investment enquiries gauge fell to -41%, making it the lowest since 2009. Capital values expectations also declined, with respondents sending the gauge to -35%.

RICS highlighted that the falling sentiment in London’s commercial property market is greater compared to the rest of the country. Among UK respondents, 36% considered the British market to be entering a downturn, while more than half (54%) of London-based respondents had this opinion.

When addressing the different views across the UK and London, RICS offered the following analysis: “Back at the UK-wide level and, despite a softening demand backdrop, the supply of property for investment purposes still remains tight.”

Challenging conditions

In other recent findings, commercial real estate company Cushman & Wakefield revealed a third of UK property deals have stalled or been cancelled after Brexit. One of the most notable is the £465 million collapse of Union Investment’s attempted purchase of Cannon Place – a 389,000 sq ft London office development.

Elsewhere in the market, estate agent Foxtons shared disappointing financial results as its pre-tax profit dropped to £10.5 million for the first half of 2016– a 42% decline compared with the same period in 2015. Anthony Codling and Sam Cullen, analysts at investment banking firm Jefferies, believe Foxtons’ lower profits can be attributed to focusing on London, whereas rivals have been more balanced.

Despite the recent headlines, Cushman & Wakefield has positive news for London’s commercial property market. In its latest research, the company revealed London’s current 33% failure rate in deals is stronger than the 41% average for the rest of the UK.

With the post-Brexit landscape raising numerous concerns, UK and London commercial landlords should be financially prepared for potentially challenging times ahead. Ethical and professional debt enforcement services can help property owners limit commercial rent arrears and maintain a healthy cash flow.