As uncertainty about next week’s independence referendum grows, an increasing number of commercial property buyers are inserting “exit clauses” into contracts on Scottish deals, property experts are claiming.
While the clauses would give buyers the option of pulling out of purchases or renegotiating prices there is also evidence that lenders are “delaying” deal funding, developers are putting off decision-making and occupiers are postponing lettings.
Within the past week a source close to a major project to double the size of Glasgow’s Buchanan Galleries shopping centre admitted that the project’s backers could withdraw if Scotland votes to break up the Union.
And the Financial Times says it has been informed by a number of UK property companies that they are “postponing decision-making” and have noticed that tenants, particularly large national-chain retailers, are refusing to renew or commit to new long-term leases until after the vote.
After Sunday’s publication of a YouGov poll — suggesting that the “Yes” campaign has taken the lead for the first time — Cushman & Wakefield partner, David Davidson, admitted more and more deals were likely to be frozen during the final days of the referendum campaign.
“There is a very real risk that any transactions currently in solicitors’ hands will be delayed now, given the polls at the weekend,” he said. “It is undeniable that the market has slowed down in the last six to eight weeks.”
Global property advisers CBRE also confirmed that international investors have now actively started putting a hold on Scottish deals, some of which had been under negotiation for months.
“Vendors are afraid that the current uncertainty will impact negatively on pricing,” the real estate company said in a statement to the Financial Times. “Purchasers are wary of committing major capital to assets where there is uncertainty about the economic, monetary and political landscape post referendum.
“Purchasers of some assets are inserting a condition that relates directly to a ‘No’ vote,” the CBRE statement added. “They will only complete the deal in the event of a ‘No’ result — a ‘Yes’ result will allow them to walk away or renegotiate the terms.”
Cushman & Wakefield said it also knew of a case where a buyer had used an “exit clause” that would invalidate the deal in the event of an independence vote. “This would enable them to renegotiate the price, as property prices are likely to fall if Scotland becomes independent,” said Davidson.
“In the short term there is added concern that there will be a price adjustment, indicating that investors are reckoning on a greater degree of risk.”
Faced with a “Yes” vote, one London analyst is predicting a wave of property market uncertainly as institutional investors — whose mandates specify they can only invest within the UK — begin divesting themselves of Scottish property. “With that number of assets suddenly becoming available the price of property is going to nose dive,” he warned.
