Thousands of investors are expected to postpone or pull out of property deals as a result of Theresa May’s decision to hold a snap general election for June 8, according to Savills.

The international property advisor says that there will almost certainly be a slowdown in activity over the next few weeks, as buyers and sellers wait to see what the outcome of the election is and what impact it has on the property market.

Three of the past five election years (1997, 2010 and 2015) saw the Savills All Sector Prime Yield increase by a quarter of a percentage point in May/June, before reverting to pre-election levels within three months of voting day.

This year’s election period could follow this pattern, says Savills, although given international investors’ perceptions of the UK as a safe haven in the context of global geo-political uncertainty and the currency discount currently available UK property, any drop in confidence could be less pronounced and the period of uncertainty shorter than in previous election years.  

The first quarter of the year saw a record level of almost £5bn transacted in the London office market, according to Savills, 84% if which involved non-domestic investors.

Mark Ridley, CEO of Savills UK and Europe, said: “With the announcement of June’s  snap general election arguably uncertainty in the UK has risen again. However, the story around transactional activity and pricing in general election years is far from conclusive, and the election this year takes place against a very different global backdrop to that of 2010 and 2015. The election may have a short-term effect on confidence, but it’s unlikely to last. Indeed, June 2017 may be a good time to buy.”

Savills’ latest Market in Minutes report notes that UK secondary and tertiary yields are more likely to be affected by domestic uncertainty, with the spread between national prime and secondary yields widening from its recent low of 316 basis points (bps) to 355bps, which is above the long-term average of 326bps. This points to a mix of increased caution around secondary assets, although risk remains significantly lower than during the global financial crisis (GFC).

The spread between prime and secondary yields in the regional office markets is also wider than average but, again, significantly narrower than during the GFC, according to Savills.

Mat Oakley, head of UK and European commercial research at Savills, commented: “Looking ahead, we do expect to see weaker investor demand for short income deals as concerns about demand and rental growth rise, and a greater degree of caution is applied to their evaluation. In turn, secondary yields will also rise until they start to look cheap in relation to the occupational risk.

“However, the ceiling for secondary yields this cycle is definitely lower than it was in 2007- 2012, although the highest returns will once again be from turning short income into long income.”