The Law of Unintended Consequences

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The Law Of Unintended Consequences

What will be the impact of Brexit on the price of bread in the shops? No idea, but by looking at the UK market we can see evidence that a negative impact is already being priced in.

Real estate as an asset class has generated strong returns in recent years, and Central London Prime Property particularly so. Foreign investment coming in has been a driver of that with c70% coming from abroad over 2014/15.  

The UK as the 2nd largest economy in Europe, 5th globally and one of the fastest growing in the developed world has attracted property investment in anticipation of future currency appreciation.  Growth expectations, political stability as well as asset quality have driven up valuations even in the face of falling yield.

Brexit seems to be raining on the parade.  Views of future growth are becoming less optimistic, and the exchange rate has been volatile / falling in recent months compared to major currencies.  The impact on property has been patchy, but negative.  Brexit is causing some foreign buyers to stay away, delay or to be more cautious.  Unique propositions such as Prime Retail seem to be resilient, but non landmark assets, even of good quality are feeling the cold in valuations and lower levels of interest in sales.

Just a small example, but one that shows how something that may or may not happen has already generated consequences.

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By Colin Shapiro

Responsible for Product Development at Knadel, Colin is a consultant with extensive experience gained in both line and consulting roles. He has deep experience of outsourcing, having worked within the outsourcing industry as well as advising clients as a consultant.

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