UK referendum: Will a pause be followed by a bounce?

At DLA Piper’s inaugural summit exploring the European real estate landscape, uncertainty around the UK’s EU vote was discussed. Real Estate Capital’s editor, Andy Thomson, took notes.

European real estate professionals from around Europe gathered at the beginning of March at the Landmark Hotel in London for law firm DLA Piper’s well-attended European Real Estate Summit 2016.

Event chairman, DLA Piper's Olaf Schmidt
Event chairman, DLA Piper’s Olaf Schmidt

Having organised similar events in the US and Israel, the summit – which was headlined “Navigating Complexity in Diversified Markets” – was the firm’s first to focus on Europe. Unsurprisingly, with its referendum on European Union (EU) membership looming in June, the UK garnered much attention from those present.

“We have been in the UK for over 30 years and lent at different points in the market,” said Richard Bentley, head of UK real estate finance at German bank Helaba, in the opening panel looking at the challenges of risk allocation.

He added: “Brexit is a focus for us and for everyone. There will at least be a big pause for thought and I would expect a slowdown – although I had the same expectation at the beginning of last year and the market turned out to be strong. Also, if the UK votes to stay in the EU, there will probably be a bounce and we could be busy in the summer and autumn.”

In large part because of the situation in the UK, Martin Bruhl, managing director at Union Investment Real Estate, said he expected less activity in Europe this year than last year. “The UK has an important role in European capital flows and there will be a pause and then it depends on the catch-up in H2,” he said.

Perhaps thinking of the UK vote, Bruhl also said: “People will continue to look to the safe havens of real estate but the perception of safe haven will change and some [markets] will lose that status temporarily if not permanently.”

‘Exceptional threats’

Nils Hubener, chief investment officer at BNP Paribas Real Estate Investment Management, warned of “an exceptional threat scenario” hanging over the European market as a whole at the current time.

“There are always political and economic challenges,” he noted, “but at the moment the combination is worrying – the slowdown in China, the terror threat to European lifestyles, the UK discussion and the failure of the EU to find a common policy [on the migration issue].” He also referenced the threat to the Schengen agreement. “In logistics, there is the assumption of an integrated market. Is that still true?” he pondered.

However, Hubener also said “it still feels like there are a lot of good and positive metrics. There are quite a few markets where there is good supply and demand and rental growth where finance is available and there does not appear to be excessive risk taking”.

“The key is to be very selective,” insisted Kiran Patel, chief investment officer at Savills Investment Management. “We’re into a cycle and in the next three years total returns will not be like the three years just gone. You’ve got to expect lower returns.”

He highlighted Finland as a possible counter-cyclical play “if you get the pricing right” while Dutch retail and logistics appears to be making a comeback and Italy is only a year into its cycle.

Looking ahead, Anthony Butler, global head of corporate finance & investment transactions at Generali Real Estate, said: “My instinct is that there will be a slowdown in investment programmes for many as the danger increases of catching a falling knife. But there is still pent-up demand when you look at the difference between what has been allocated and what has been invested.”

Of the debt environment, Bentley said: “I don’t think lending will fall away. It will probably be flat, not a bumper year.”