Investment into U.K. real estate during 2016 hit its weakest level since 2012 and is set for a poorer result still in the year ahead, according to global property services adviser CBRE.
The firm expects total investment in the U.K. for 2016 to amount to £49 billion ($61.9 billion), representing a 30 percent tumble on last year's record of £69 billion.
The CBRE pointed to fears surrounding the global economy and Brexit as the key reasons for the slowdown,with further factors including Chinese financial market turbulence and reduced global capital flows as secondary drivers.
Looking ahead, the CBRE says falling capital values will mean total returns in 2017 will be subdued at 1.1 percent and rely heavily upon income.
While the firm acknowledged activity levels undershot its prediction made in last year's version of this outlook report, it was at pains to emphasize it does not regard the slowdown as structural in nature, claiming the so-called "Brexit effect" – characterized by uncertainty and hesitation – was evident from the moment the June 23 referendum date was announced in February 2016.
Asked by CNBC about the biggest upside risk to CBRE's outlook, Miles Gibson, head of UK research pointed to more resilient consumer confidence and business investment helping the U.K. economy to outperform expectations.
"This might come about, for example, if there is continued stability in the Eurozone, Brexit negotiations proceed positively and efficiently, or if the boost from a recovery in the US is stronger than we currently expect," he suggested.
On the other hand, contamination from a worsening situation in Europe could mean CBRE's outlook is too optimistic.
"A significant deterioration in the Italian banking situation could risk inflaming Eurozone tensions. And of course next year is a big year for general elections in Europe, adding to the potential for further instability" Gibson explained.
The critical influence of sterling's strength on the property market was highlighted in the outlook, with a reminder that while the 17 percent drop in its value against the dollar since the Brexit vote made properties significantly cheaper for dollar-denominated buyers, it was also a double-edged sword.
"There is very strong overseas interest in purchasing U.K.property, particularly property in supply-constrained markets with long income and good covenants," the outlook stated.
"However, there are not many sellers in the U.K. market. Sellers are deciding to wait out the current uncertainty rather than accept a lower price. And some of them are foreign themselves, in which case they are victims, rather than beneficiaries, of currency weakness," the report elucidated.