In a move described as "a huge U-turn", political commentators were caught by surprise when Theresa May announced that she would be calling a snap general election to take place on 8th June. Although the Conservative Party secured the most votes, they unexpectedly failed to secure a majority. As a result, the commercial real estate market, along with the rest of the country, faces an uncertain political backdrop against which it must continue to operate.
With Brexit negotiations beginning on 19th June, it remains to be seen whether a minority Conservative government propped up by the DUP of Northern Ireland can navigate the UK through the negotiations effectively. Arguably, the outcome of the election has weakened the UK's bargaining position and overall ability to negotiate with the EU. Whether the make-up of parliament will impact the UK's economic cornerstones which underpin the commercial real estate market is yet to be seen. This uncertainty has been echoed by Mark Granger, CEO of commercial agents Carter Jonas, "the only thing that we can predict, particularly in the current political climate, is unpredictability". Since the result of the EU referendum, the commercial real estate market has been more active than predicted. The Investment Property Databank showed an overall valuation decrease of only 3% in the six months following the referendum result. Encouragingly, the Databank has demonstrated valuation increases from February to April 2017. Industry figures have commented that the market has become accustomed to a certain level of political volatility.
There are several factors which afford protection to the UK market against a prevailing tide of uncertainty. Yields on UK properties are more attractive when compared with other assets and with foreign property markets. As exit poll results predicting a hung parliament were announced, GBP fell by 2% against the USD. The current sterling slump makes the UK property market particularly appealing to foreign investors. It is anticipated that this currency lift, coupled with the fact that foreign investors are often motivated by events outside of the UK, will ensure investment from outside of Europe will continue. There is also a significant supply of competitively priced secondary properties which, although riskier, present potentially lucrative opportunities for investors. Chris Ireland, CEO of corporate property management firm JLL UK has stated that, "the UK is rated by JLL as the most transparent real estate market in the world. This is a result of liquidity…as well as factors such as strong economic fundamentals".
Many in the industry feel that a softer approach to Brexit would be more beneficial for the market in the medium to long term. One possible consequence of the outcome of the election is that the "hard" Brexit approach that seemed inevitable may be softened. James Roberts, chief economist for Knight Frank has commented that, “while it is easy to assume the certainty of a clear majority government would have been the best outcome for the economy, actually this result has several positive points. Firstly, the government will probably need the support of several other parties…..the pendulum has swung against hard Brexit".
Despite the general feeling of uncertainty, it could be argued that the outcome of the general election will provide a good opportunity to ensure a more democratic, consensual approach to Brexit - a welcome development for many stakeholders in the UK commercial real estate market. It is also clear that the UK's economic rudiments provide for a certain level of resilience. However, in what must feel like the norm for UK businesses operating in all sectors in recent years, what the immediate future holds in the wake of the election result and how this will effect Brexit is not currently clear. With major outstanding issues which could significantly shift the political and economic landscape, it is still very much a case of "watch this space".