‘The risks of a sharp adjustment are crystallising’

Empty abandoned factory warehouse

Brexit has the potential to inflict severe damage on the UK’s commercial property market, the Bank of England warned.

The central bank’s Financial Policy Committee said that “the current outlook for financial stability in the United Kingdom remains challenging,” in a statement following its meeting this week.

“Heightened uncertainty about the near-term macroeconomic outlook and the United Kingdom’s future relationship with the EU is reinforcing domestic risks,” the UK’s central bank said.

“In the UK commercial real estate

market, the risks of a sharp adjustment are crystallising. Prices have fallen and transactions are at their lowest level since 2009,” the Bank of England said.

Confidence in the UK, and London’s, commercial property market has been hit hardest by Brexit. In July, at least nine investment firms suspended trading in their property funds in the wake of the June referendum on EU membership, freezing £15 billion ($19.4 billion) of assets out of a total of £24 billion sunk into UK open-end real estate funds.

While residential property transactions are recovering from the hit, last month, property group Savills said earnings on commercial transactions plunged 23% in the six months to June 30, as investors waited for the outcome of the June 23 referendum.

“In Central London, many of the hitherto significant buyers (Sovereign Wealth, International Private Equity) elected to remain largely on the sidelines during this period, which opened the way for Private Wealth from areas such as the Middle East to transact,” Savills said.

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