Here’s What The Bank Of England Thinks A No-Deal Brexit Will Do To Commercial Property (Spoiler: It’s Not Good).

Bank of England
The Bank Of England

Commercial real estate professionals might need to start lobbying their member of Parliament to try and ensure that a no-deal Brexit doesn’t happen. Because the Bank of England thinks that would be very, very bad news for the sector.

The Bank outlined several scenarios as to the effect different kinds of Brexit would have on the economy. Two of them involved no deal. In the “disruptive” scenario, tariffs and other barriers to trade between the U.K. and EU are introduced suddenly. No new trade deals are implemented within the five-year transition period, but the U.K. replicates deals acquired by virtue of EU membership.

In the “disorderly” scenario, the U.K. loses existing trade arrangements with non-EU countries that is has through membership of the EU. The U.K.’s border infrastructure is assumed to be unable to cope smoothly with customs requirements, and there is a pronounced increase in the return investors demand for holding sterling assets.

For commercial property, neither scenario is great. In the disruptive scenario, values would fall 27% over a five-year period, the Bank predicts.

In the disorderly scenario, they would almost halve, a 48% fall. To put that in context, after the credit crunch they fell by 42%.

“The weakness of output and incomes, alongside rising interest rates and a pronounced tightening of financial conditions, results in sharp falls in some asset prices,” the Bank said.

“Investors are assumed to respond to rising corporate bond yields (falling prices) and falling property prices by selling these assets, putting further downward pressure on prices.”

The scenarios have been widely condemned by those in favour of a hard Brexit as an attempt by the Bank to scaremonger politicians to push for close alignment of the U.K. and EU after the U.K. departs. If a deal is not reached, commercial property needs to hope they are right.

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