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Brexit Woes Spark Sharp Fall in UK property Shares

The UK’s listed property companies remain shaken by uncertainty over the future of the Prime Minister’s Brexit withdrawal agreement.

According to consultant Building Value, a property slump remains in effect. The total value of British housebuilders fell by £3bn, or 8.1%, over the week, making it the worst-performing week for the sector since the referendum., when housebuilder value fell by 18.1%.

Large REITs in the UK were also affected by the resignation of Dominic Raab, Brexit Secretary. That day, British Land shares were at 5.7%, there was a 4.5% fall in Landsec shares, and SEGRO shares fell by 3.1%.

Duncan Owen, global head of real estate at Schroder Real Estate Investment Management, said that during the course of one week, the possibility of a difficult Brexit shot from 10 to 50%, which affected sentiment and made people nervous.

Mike Prew, real estate analyst at Jeffries, said that the current political unrest was making current weaknesses within the sector more glaring rather than actually causing them.

Mr. Prew said that while Brexit was an important issue, CEOs who talk about valuation reductions or downgrades in business and blame it on Brexit will have problems in the future.

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He said that the peak of the cycle passed three to four years ago and now the downward correction is due to happen.

Analyst David Brockton at Liberum said that others see a clear link between Brexit and the way that some commercial real estate sectors are performing. A price correction would be regarded by London offices as the consequence of a disorderly outcome.

Mr. Brockton said that such an outcome would result in a correction for the London office market. While it would present short-term difficulties for NAVs, most of them will capitalise on the reduction and turn into net acquirers.

Tom Leckie, analyst at JP Morgan, insisted that Landsec would welcome any stress in the London office markets due to Brexit difficulties, as its new high-quality, long-let portfolio will see it through a downturn. It also has the balance sheet to invest in any new opportunities.

Mr. Brockton added that it was unclear whether the stock market had priced sufficiently in a correction induced by Brexit.

The question of how far the market has priced in response to Brexit is further complicated by other factors, such as the prospect of a fall in the value of the pound, which could trigger an infux of foreign money.

Mr. Owen said that for now, he expected the market to remain volatile, as buyers and owners were already nervous and alarmed by the smallest thing. He anticipated more twists and turns to come.

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