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EU Referendum: Making sense of Brexit

The post-Brexit political landscape has become clearer and Theresa May is set to become the new Prime Minister. May voted Remain. She has said she will enact Brexit, although she is cautious about when to invoke Article 50 and what deal she favours. In contrast, the Labour opposition is in disarray as leader Jeremy Corbyn refuses to resign despite an overwhelming no confidence vote from MPs. According to JLL, after a period of consolidation, financial market instability returned at the start

The post-Brexit political landscape has become clearer and Theresa May is set to become the new Prime Minister. May voted Remain. She has said she will enact Brexit, although she is cautious about when to invoke Article 50 and what deal she favours. In contrast, the Labour opposition is in disarray as leader Jeremy Corbyn refuses to resign despite an overwhelming no confidence vote from MPs.

According to JLL, after a period of consolidation, financial market instability returned at the start of July. The most significant movement has been a further depreciation in the pound, with the GBP/USD rate declining as low as $1.28 last week, a 31-year low. The FTSE100 has rallied and is now above its level on the day of the vote, but wider share indices such as the FTSE250 are well below their pre-vote peak in contrast, reflecting their greater weight of domestic business. UK REITs have also seen significant share price declines, with the aggregate FTSE REIT index down around 20% on the 23 June level late last week.

Following the depreciation of the pound against the dollar and euro, the UK is a more affordable place to visit, which is good news for the hotel industry. Interest in travelling to the UK has risen sharply from China and the US since the referendum, according to a number of online travel agents (OTA’s). China’s leading OTA, Ctrip saw the number of searches for UK holidays triple and suggests that a summer vacation to the UK could now be up to one third cheaper. In addition,
according to Kayak, after the vote, there was a 54% uplift in US travellers searching for flights to the UK.

In terms of hotel investment, investors with equity may push ahead with deals already in the pipeline, whereas those that need to borrow will hold tight, due to the uncertainty in the lending market.

Despite this, opportunistic investors are taking advantage of the weaker pound. Chinese investor Fosun recently increased their stake in Thomas Cook after the share price fell by more than 20%. In addition, a group of Hong Kong-based investors bought the Travelodge Royal Scot Hotel in Kings Cross on the day of the referendum, confirming the appetite from Asia for this rare opportunity.

Since the Brexit vote, we have seen an increase in enquiries from opportunistic Asian investors. The UK hospitality market is widely respected and, while there may be a pricing adjustment, investors will continue to look for opportunities from hotel assets. 

Highlights on JLL's latest Brexit talking points document:

  • Political and economic uncertainty is clearing slowly, although financial markets remain volatile and GDP growth
  • expectations have been downgraded
  • Occupiers are taking stock; flexibility is likely to become fundamental to near term decision making. Longer-term impacts (loss of ‘passporting’) or benefits of Brexit are still to play out
  • London office occupier demand cooled in Q2 and is likely to remain subdued in H2. Low vacancy, coupled with
  • an increasingly diverse occupier base, should prevent a dramatic fall in rents
  • High end residential in London is susceptible to weaker demand, although the fall in sterling will attract overseas demand from purchasers from dollar pegged markets – notably Middle East and Asia
  • Hotels are set to benefit from weaker sterling and increased tourism. Prime hotel assets are least vulnerable to any price correction.
  • Occupier demand in industrial has held up though a softening is in prospect; slowing speculative supply should support rents. Investment pricing will come under inevitable pressure in the short-term.
  • Retail has responded well since 2008 to cyclical and structural change; retail spend is relatively robust, although not immune. Relevant and resilient retail will hold up, weaker secondary is more exposed.
  • Direct real estate investment has paused to absorb the implications of the vote. Assuming occupational demand holds and favourable currency movements support overseas demand, impact on values will be contained. Indirect investment remains under pressure.
News Editor - TravelDailyNews Media Network | + Posts

Tatiana is the news coordinator for TravelDailyNews Media Network (traveldailynews.gr, traveldailynews.com and traveldailynews.asia). Her role includes monitoring the hundreds of news sources of TravelDailyNews Media Network and skimming the most important according to our strategy.

She holds a Bachelor's degree in Communication & Mass Media from Panteion University of Political & Social Studies of Athens and she has been editor and editor-in-chief in various economic magazines and newspapers.

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