The vote to leave the EU took many by surprise and it was inevitable that markets would pause to take stock. We have a long way to go in the Brexit negotiations but much of the dust has now settled. What does the landscape look like now?
After fifteen years of strong growth, average prices have certainly fallen over the past year or two, from a peak of around £10,000/acre to perhaps £8,000 to £9,000/acre for arable land. Sizeable fully-equipped farms remain in short supply and will continue to attract strong interest, largely from nonfarming money. Smaller blocks of bare land show a very wide range of prices, depending upon local interest.
The decline in values was firmly established before the referendum and is a result of low commodity prices and a weakening general economy. Nevertheless, farmland maintains its attraction as a safe investment in difficult times, within a benign tax regime. Further significant decline is not inevitable but buyers will certainly remain cautious until we can compare post-Brexit support mechanisms with the existing EU schemes.
The upper end of the market (£750,000+) has cooled down, with London leading the way. This cooling was happening in any event but Brexit has magnified the effect. The good news is that the lower end of the market has marched on with barely a hiccup. Sales rates are maintained and prices have continued to creep upwards.
Prospects are good for continued, if unremarkable, activity and growth in values. Supply of new houses continues to fall well behind the demand and the Government’s Help to Buy scheme is funded for the next four years. The top end will surely follow in time, other than in London which may suffer from the withdrawal of international buyers for some time yet.
Some housebuilders, particularly the listed companies, made public statements that they would not be buying any development land in the immediate post-Brexit period. However, in private, they were telling us that sales rates were holding up and that prices continue to rise. The need to maintain a reliable pipeline of sites has inevitably brought all the major housebuilders back to the market and competition is strong.
Of course the housebuilders have challenges; the planning process is notoriously slow, a year ago there was a shortage of bricks and blocks, now there is a shortage of skilled labour, restricted access to East European labour could be difficult. However, while houses are selling, development land prices will hold up.
There are signs of a slowdown in letting of office and retail properties nationwide but demand has proven more resilient for industrial properties. Alongside this the supply of leasable space for offices and retail space has increased slightly whilst availability of industrial space continues to decline.
We are finding that there is good demand for small industrial units of between 1,000 to 5,000 sq ft, whilst demand for retail units and offices is very much price led, and small units with short term leases of less than 3 years are the favoured option for the majority of tenants.
Demand still outstrips supply which has seen an increase in rental value. Investor landlords have been hesitant of late as they are unsure of their financial future. We believe the market will continue to get stronger and the lack of supply will only make rents increase further.
We are letting the majority of our properties on the first or second viewing as tenants are aware that they have to make a quick decision when they see a property they like. We are also seeing that more tenants are staying in rental properties longer as moving costs have increased and they are unable to find another suitable property.
Overall it is our view that markets have returned to normal following a post- Brexit pause for breath. All markets have their challenges of course, and always will do. The Brexit negotiations may throw up challenges and opportunities in equal measure, but for now business goes on.
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