Perhaps no one will ever understand the meaning behind “Brexit means Brexit.” CBRE’s Capital Watch took a further look into the UK’s referendum result and discovered that people are now concerned to what effect it will really have on the economy, and in particular, the property market. “We have seen a few glimpses of the vote’s impact through the closure of some of the retail funds and the sharp mark down in quoted REIT prices, but even here many funds have reopened, net inflows are again being experienced and share prices are recovering,” said CBRE.
Could re-focusing our attention on the market fundamentals over the longer term be the solution? The firm believes that where there is plenty of evidence to show that we are well positioned to weather any short term influences that might impact the market. “One consequence of the vote has been for boards and owners of companies to hastily review their capital structures to check they have sufficient liquidity during what might become more challenging times,” noted CBRE. “We talk to many investors, as well as to over 100 lenders to property, and what we’ve been hearing in the last few weeks about the quantum of available debt and overseas equity is encouraging.”
“Banks are generally in a healthier position with lower levels of exposure to real estate than in previous cycles–a crucial factor as strong relationships with lenders and access to liquidity will sustain the current position and help drive any recovery, when it occurs,” the firm stated. “Evidence also suggests that the quantum of existing loans due for maturity in the next couple of years is lower–a product of the desire over recent years for borrowers to take advantage of lower longer term funding costs.” CBRE also noted that borrowers won’t even necessarily have to pay more for senior debt, since a 25-50 basis points rise in pricing is netted out by the fall in the 5-year swap rate since the vote. “It is easy to forget as well that in this sustained lower interest rate environment overall borrowing costs remain at historical lows.”
While the Brexit vote initially knocked consumer sentiment, confidence has bounced back this month, Bloomberg’s Fergal O’Brien reported. “A consumer sentiment index by YouGov and the CEBR rose the most in more than three years in August, rebounding from a three-year low in July.” “For all the talk of doom and gloom—both in the months leading up to the referendum and in the days following it—most consumers have yet to feel much tangible impact of the vote,” said Stephen Harmston, head of reports at YouGov. “It’s clear that the panic that gripped the public in the immediate aftermath of the referendum has subsided as institutions like the Bank of England take decisive action and the result becomes a part of life.”