By Tom Leahy on December 4th, 2019
The U.K. heads to the polls on December 12 with Prime Minister Boris Johnson wanting to strengthen his parliamentary position to “Get Brexit Done”. All elections present a choice, but the polarization in U.K. politics means the divide between the two main political parties – Conservative and Labour – is as wide as it has been since the early 1980s.
Analysis of past election periods since 2001 show there is very little correlation between U.K. general elections and property investment volumes; however, the economic stakes may be higher in the current round. The prospect of a socialist, left wing government led by Jeremy Corbyn is being touted by some as a greater risk to the U.K. commercial property market than Brexit.
It is against expectations, therefore, that November was the strongest month for investment activity since December 2018. Does this mean investors are ignoring the politics completely?
Maybe not. The likelihood of a Labour majority is relatively slim – 20/1 according to the latest bookmaker odds – and it may be that buyers are discounting this from their decision-making.
Secondly, the type of assets that continue to trade is indicative: more than half the November volume was in apartment trades. Here, investors are allocating capital based on long-term shifts in demographics, urbanization and public policy. These drivers are unlikely to change in the event of a switch in government.
Additionally, the broad factors pushing investors towards real estate as an asset class have not lessened, and investment managers still have plenty of cash to spend. Moreover, some international investors continue to buy in London, no matter the political risk. For example, Spanish family office Ponte Gadea have just acquired the Post Building, a former Royal Mail sorting office on New Oxford Street that has been redeveloped into a 27,000 sqm office building, for £600 million ($780 million).
While November looks relatively good and the level of pending deals is approaching £4 billion, U.K. transaction volume will still finish 2019 well down on 2018. Also, the latest RCA CPPI data shows U.K. commercial property prices falling year-over-year for the first time since 2013.
It is possible that market will rebound strongly if the perceived political risks subside after the election. Equally, a hung parliament would further muddy the waters surrounding the direction of domestic policy and the U.K.’s exit from the European Union. For those investors who have taken a risk averse approach to the market, this is likely to prolong their absence. And with more wrangling to come when the U.K.-E.U. negotiations move on to a trade agreement, there is still more uncertainty booked into the future.
Additional data analysis by Beatrice Ginieis.
Also on RCA Insights: