The UK real estate industry neither expected nor welcomed Brexit. The outcome was a shock for many, and almost a year after the referendum there is still very little understanding about how Brexit will evolve.

The macro level continues to be important. There are new presidents in the US and France, and a federal election will be held in Germany in September. Some people argue that Brexit may encourage other countries to look at leaving the EU. In the UK it remains to be seen what strategy Theresa May will adopt, having lost her majority in the general election results. All of these could affect the real estate market going forward.

Within the UK, the initial response to the EU referendum was a slowdown in core investment activity. The referendum outcome, and the uncertainty that stemmed from it, led some London-based companies to announce that they would consider alternative locations outside the UK for some parts of their operations. Our CEE colleagues reported several real estate players showing interest in alternative European cities, particularly those competing to attract a share of the financial services sector activity. Paris, Frankfurt, Amsterdam, Dublin and even Madrid, could experience some positive effects on their office, occupational and investment markets. Brexit may also have positive effect on investment volumes, especially in Germany, Belgium, France, Poland and non-Eurozone Nordics.

Investors, developers, funders and occupiers have worked out their strategies. Some have policies in place to offset currency exposures, such as hedging. Others have separated sterling and euro exposures into different funds to contain any possible negative impact within UK funds. By holding sterling-denominated real estate assets and euro-denominated real estate assets in separate funds they can, to a large extent, protect themselves from big movements in currency values which have been the primary source of volatility in recent years across most investment asset classes.

The UK real estate market recovered quickly from the referendum shock. Active alternative investments remain strong in healthcare, retirement living, student accommodation, hotels, infrastructure and residential properties. Local authorities (supported by public funding) are actively investing in and developing mixed-use regeneration areas and particularly housing.

Buoyed by continuing overseas investment, particularly from US and Asian capital, inward investment activity levels also show no sign of slowing down. The first post-referendum deal in the City was the £84.5m acquisition of 41 Tower Hill, which represented China Minsheng’s debut into the UK market, followed by the acquisition of Moor Place in the City by a Hong Kong investor for £271m (representing a yield of 4.85%).

The UK market remains fundamentally solid. Real estate will continue to be appealing to both major investors and opportunists, particularly those that can benefit from a combination of price corrections, weaker sterling and solid income security. Whilst the road to Brexit will no doubt have bumps along the way, UK real estate is still a long-term attractive, transparent investment asset class for which the fundamentals remain strong.