As the U.K. grows closer to the impending Brexit deadline, the real estate market is experiencing a downturn that may last through the final months of 2019. The question that remains seems to ask just how far down the market will drop. Even though the majority of investors are agreed that the real estate market will continue to drop, they seem to be divided in terms of responding to that decline. While some seem content to stand back and wait for a rebound, other investors are hoping to take advantage of the lower prices.
Investment Property Forum (IPF) recently surveyed investors and published their findings. Of those surveyed, most investors said they expected to see a slowing of returns, and they also expect to see capital values to decrease significantly. Many anticipate seeing those values drop down into negative numbers. This suggests the anticipated downturn in the market is more of a certainty than people realize. Putting these expectations into quantifiable terms, returns are expected to drop by half and are estimated to drop from 6.2% down to 3% by the end of this year. Capital values will continue dropping well past the end of the year as well. However, even the most dismal forecasts suggest the industrial sector’s capital values will rise by a 2.7% margin.
In spite of the expected downturn in the market and an increased yield, real estate analysts aren’t expecting a hard drop. In fact, they offer hope by suggesting commercial properties will only experience a gradual drop. According to Capital Economics, values may only drop from 5% to 9% between 2019 and 2021. These estimates may seem disappointing, but they’re far better than previous forecasts. For instance, the Bank of England anticipates a 27% drop on commercial property values over the next five years. If the Brexit deadline results in a more “disorderly” break from the union, the bank believes the market will respond with a 48% drop in capital values.
While it seems as though the market will continue to drop for the foreseeable future, the news isn’t all bad. Even though sellers may have to put off their listings or take a cut on sale prices, investors will likely see this as an opportunity. If enough investors take a chance and buy commercial properties at the lower prices, it may be enough to reignite the market.