Asset manager DWS sees investors shying from the UK as the country continues to be embroiled in Brexit uncertainty, but expects international capital to enter the market quickly once the UK leaves the EU.
“We are probably not recommending to go heavily into the UK at the moment,” said Matthias Naumann, DWS’s CIO and head of strategy for alternatives in Europe. “We don’t really have a better idea of where the journey of Brexit is really going.”
However, Naumann added: “Having said that, we do have educated investors waiting who are willing to take selected assets in this space.”
Naumann spoke on a webinar to discuss DWS’s latest outlook paper for European real estate, held shortly before prime minister Boris Johnson suffered a double defeat in the House of Commons, as MPs voted to stop the UK leaving the European Union without a deal and to prevent a snap general election.
DWS’s head of research for Europe, Simon Wallace, said he believes dealmaking in the UK market will pick up quickly once the UK leaves the EU, regardless of whether or not it does so with a deal.
“If we see a no-deal Brexit, we would expect a price correction both in central London and to a slightly lesser degree in the regional cities as well,” he said. “We would expect that prices fall because of that.
“On the worst case scenarios that I read across the industry, people are showing forecasts of up to 40% capital decline in central London offices. We wouldn’t go that far.”
He continued: “We wouldn’t expect to see such a large decline in central London if there is a no-deal Brexit. The reason for that is twofold: the first point is that the market has held up better than expected. But perhaps the more important point would be that as a result of a no-deal Brexit and with an adjustment to sterling as well, we would expect to see overseas capital coming back into particularly the London market fairly quickly.”
DWS remains bullish on Europe as a whole and has revised its outlook up. Wallace said although investment volumes were down 15% in the first half of the year, he expects stiff competition during the rest of 2019.
He added: “It’s important to stress that while we are expecting an economic slowdown, we are not expecting a European recession.”
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