Post-referendum jitters have created opportunity, says First Property Group boss
The pro-Brexit boss of First Property Group has said that post-referendum jitters have created a major opportunity in the commercial property sector.
Chief executive Ben Habib said the property fund manager is benefiting from falling demand for prime UK sites in the wake of the referendum, which has reduced prices and subsequently increased financial returns for buildings it otherwise could not afford.
"We've got an environment where the larger institutional properties have less interest in them, and therefore are being priced at a lower level," he told the Press Association.
"We are therefore finding buying institutional property more attractive at this juncture, than buying what we would typically, which is secondary commercial property."
Whereas two years ago, a Sainsbury's supermarket on a 25-year lease would have provided a 4.5% return for investors, that same site now has a 6% yield, Mr Habib explained.
It has created an investment opportunity for the firm, which has around £353 million in assets under management across the UK, Romania and Poland.
"I haven't been able to justify buying supermarkets before, but I can now given the high yields that we can get on them as a result of falling prices," he said.
Mr Habib said the investment environment would be vastly different if more fund managers were Brexit supporters, and that his optimism has set him apart from sector peers.
"They're sitting on their hands waiting for the future."
But the window for cheaper investments may be closing.
A new report by Capital Economics claimed that commercial property investment volumes "appear to be stabilising", and while activity was "a little subdued" compared to 2014 and 2015, it was more or less in line with the 10-year average.
The number of deals dropped to 101 in November, compared to 141 a month earlier, but total investment activity across the sector still rose £466 million or 13% to £3.9 billion.
First Property Group will not invest in the London market, which is "still very expensive" despite the price drops, but it is snapping up a number of regional prime properties.
Mr Habib said the firm is currently clinching deals to buy up three supermarkets in Sussex, Coventry and Hampshire, where it is also about to buy into a retail warehouse scheme.
It follows purchases in Scotland, including an office block in Dundee and another retail warehouse scheme near Glasgow.
"Scotland suffers post-Brexit malaise even more than England does because everyone fears there could be another referendum for Scotland," said Mr Habib.
But that hit to pricing has made Scotland "even more attractive".
"We don't think Scotland is going anywhere," he explained.
But the most immediate financial boost for the firm has come as a result of the collapse of the pound, which has lost nearly 10% of its value against the euro since the Brexit vote.
Mr Habib said that euro-denominated income from properties in Poland and Romania has been "fantastic" for the company's balance sheet, with annual earnings set to rise by £1 million at current exchange rates.
"That's quite a lot for a company that produces around £8 million in pre-tax (profit) each year."