Brexit will affect foreign investment in commercial property

Brexit will affect foreign investment in commercial property. Photo: Sergey Nivens,
Written by Thomas McCourtie

Thomas McCourtie looks at how the recent UK referendum result is affecting the commercial property insurance sector.

Foreign investment serves much of the UK commercial property space, and insurers need to be aware of the benefits and drawbacks of the decision to leave the EU in relation to overseas investment in the market.

Commercial property in the UK is a prize asset for domestic and foreign investors. Much of the take-up is occurring in London, as buyers purchase varying property types, including retail outlets, office blocks and storage facilities. For overseas buyers, the UK is an attractive investment due to its commercial appeal, and before the 23 June Leave vote, its connection to neighbouring countries.

For commercial property insurers, the decision to leave bodes well – at least on the surface. A burgeoning and well-connected economy improves the prospects of commercial property construction, meaning more properties to insure and greater market coverage. However, Verdict Financial research shows that while overseas buyers have continued to flood the market, some are choosing to insure their assets with a provider in their home countries, which is reducing market share and resulting in fewer business opportunities for UK providers.

The decision to leave the EU is likely to reduce the number of overseas investors buying commercial property in the UK, and the effects of the vote are already beginning to resonate. Foreign banking providers are assessing the investment risk of London property assets, particularly those from the Australasia markets, causing some to halt the supply of loans to the commercial property space. Singapore’s United Overseas Bank has taken urgent action, suspending its loans programme for London properties as a result of what it called “uncertainties” in the wake of the EU referendum.

Diminishing opportunities

On the one hand, deterring overseas buyers may also deter competition from overseas insurers, thus helping UK providers maintain market share. On the other hand, overseas investment is a primary driver of the market, especially within inner city areas, and a fall in the number of purchases may reduce the size of the market, thus diminish opportunities for insurers.

As with most other commercial business segments, the market works better when it’s free of any trade restrictions and when international investment is a possibility, particularly in commercial property. The vote to leave the EU makes conditions in the market difficult, especially since progression is only really achieved if it creates opportunities for itself (ie more properties for insurers to cover).

Without foreign investment, the chances of this happening are less certain. Either way, commercial property insurers now face a bit of a dilemma, and must prepare for the potentially damaging effects of the EU exit.

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– This article is reproduced with kind permission from Verdict Financial. Some minor changes have been made to reflect BankNXT style considerations. Read more here.

About the author

Thomas McCourtie

Thomas McCourtie is an analyst within the general insurance team at GlobalData Financial. He has a fintech background, and focuses on the commercial insurance sector and the growing influence of automated product distribution platforms.

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