Ominous clouds gather as Brexit looms

The first-quarter figures are in and 2016, without doubt, has started awkwardly. Will it get worse before it gets better? The answer is an unequivocal “yes”.

The year started ominously: the most popular story on EGi in January concerned the impact on London real estate of plunging oil prices. Nick Leslau wrote on these pages how “the peak is some way behind us”. And sales of prime resi in the capital dramatically slowed, then and since.

Meanwhile, the equity markets have endured and, more recently, enjoyed a rollercoaster ride. Luxury retailers have seen fewer international shoppers in their aisles. And the annoyance of a distracting Brexit vote has morphed into a belated realisation that we could be sleepwalking into one of the biggest political and economic changes of recent decades.

Anecdotal evidence that all of the above were conspiring to pause transactions has been mounting: this week, it was confirmed. Cushman & Wakefield says Q1 investment volumes were down 32% on the same period last year, a 27% decrease on the quarterly average for the past three years. If you can afford to wait until after 23 June – to paraphrase many, many people up and down the country who I have spoken to in recent weeks – why wouldn’t you?

It turns out that as many as one in three of you believe you can afford to do so.

Now this slide in activity isn’t all down to Brexit, of course. It was the refusal of regulatory approval that caused Taiwanese insurer Fubon’s £500m purchase of Cannon Place, EC4, one of the largest ongoing transactions in the UK, to collapse this week. Global instability (Russia, China and the impact of the plunging oil price on the Middle East) may have an even bigger part to play – evidenced by a 20% fall in EMEA volumes in Q1, according to JLL, and a 17% worldwide decline.

But Brexit is a contributory factor. And of all the slings and arrows currently at work, it is the most self-inflicted of wounds.

The second quarter will be worse for activity. Talk of price-determining Brexit clauses in contracts is rife, and the mantra “Why play if you don’t have to?” will spread. But it is a wound that can be healed. The bookies, always more reliable than the pollsters, believe we will vote remain.

Capital Economics this week outlined the consequences for property. In the event of Brexit, “We may well see a softening in the pound and a dip in UK occupier and investment activity. However, there may come a point at which a weaker pound entices foreign investors back into the market. And in the medium term, we doubt that there would be a noticeable impact on either the UK or continental European property markets.”

But the house, run of course by self-described Eurosceptic Roger Bootle, acknowledges an “alternative scenario in which things turn out less well for the UK. In this scenario, a potentially significant number of companies might move their HQs from the UK (and specifically London) to other European cities. From an investment market perspective, this scenario would also be likely to reduce the flow of investor capital targeting the UK.”

Whatever the medium- and long-term consequences of Brexit, this sector would feel short-term pain. And given the lengthening list of negative forces weighing against UK plc right now, is it wise to deepen the wound?

• Speaking of uncertainty, there appears to be a growing backlash among members of On The Market. Analysts at Credit Suisse have sent a note to investors entitled: ‘Beginning of the end of OTM exclusivity?’. It goes on to say that rumours of “disillusioned” members “give further credence to our view that agents are in fact dissatisfied, but it also raises the probability of an action group launching a legal challenge against the enforceability of the OTM contract”. Watch this space.