You are probably tired of reading these but...

30 June 2016 that the dust has settled, we thought that we should add KFIM’s view to the weight of market commentary out there.

On the balance of probabilities we believe that the current market uncertainty will inevitably mean that all asset classes will experience a short term fall in value; and we do not expect commercial real estate to be immune from this. However, we also expect the impact to vary, particularly between type of property. The investment markets generally are likely to be negatively impacted in terms of growth prospects (both perception and reality), and this is likely to lead to a flight to safety as well as a search for secure income, lowering the discount rate (Gilt yields) and potentially increasing the demand for any asset that can provide both a secure income stream and a suitable risk arbitrage relative to Gilts. On a positive, this could potentially lead to greater demand for annuity type Real Estate assets; indeed, over the last 48 hours, several valuation specialists have told me that the risk for this type of stock is, if anything, on the upside. In contrast, the uncertainty and heightened perception of risk will probably result in a discount on secondary property valuations.

Looking longer term, and not withstanding some inevitable short term instability, we remain positive about the prospects for the UK economy and believe that our established rule of law together with the liquidity and transparency of our markets, means that the UK will remain a popular long term investment market for both UK and international investors. We are also hopeful that the rather inward looking behaviour currently being demonstrated by both of the major UK political parties will be short-lived!! In summary therefore, and setting aside assets with secure cash flows, for the long term investor we believe that it should largely be business as usual albeit for value add and other higher risk assets, we would advise waiting until the outlook becomes clearer and more settled before committing investment monies into the market.

On a personal note, I did vote for Remain and must admit that I was disappointed with the result. However, ultimately we are a democracy and I think it is time for us to see politicians of all persuasions actually pulling together in the country’s best interests, rather than focussing on their own internal squabbles – or perhaps I am just being the eternal optimist!!!

Kevin Aitchison



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