London commercial real estate deals look set to pick up in 2020, with the political uncertainty that has plagued the market for more than three years finally starting to lift.
UK Prime Minister Boris Johnson has a commanding majority in Parliament after his Conservative Party’s election triumph, allowing him to push through his Brexit deal and make good on his promise to take the country out of the European Union next month. That will give developers and investors greater confidence as they consider new deals, even though the prospect of a disorderly divorce remains if Johnson fails to deliver a trade deal by the end of next year.
“2019 will be the worst year,” said Stephen Down, head of central London and international investment at broker Savills Plc. “We are still traveling with a certain degree of caution, but at least one element of the uncertainty has been taken off the table.”
Demand for space usually sets the tone for the real estate market. In London, demand has been resilient, confounding forecasts around the time of the Brexit referendum in mid-2016 of a big decline if voters chose to take the country out of the EU.
Such steady demand should have set the stage for rising rents and appetite from investors to buy buildings and start new projects, but that’s not how things panned out. Uncertainty reigned as the UK missed Brexit deadlines and contested a general election to break the impasse. In this confusion, landlords postponed offering buildings for sale until the political dust settled.
Developers have also been cautious, with new construction declining each year since the Brexit vote despite strong demand, according to research by Deloitte.