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Brexit referendum poses risks to UK commercial property, says S&P

Theforthcoming referendum on the U.K.'s membership in the EU poses risks forcommercial real estate, Standard & Poor's Ratings Services said April 7.

"Uncertaintyleading up to the June 23 vote is likely to have a somewhat paralyzing effect oninvestor decisions on U.K. real estate purchases," the report said.

Ifthe U.K. votes for a Brexit this could lead to investor uncertainty during exitnegotiations, and could reverse the boost to capital values that the U.K., andparticularly London, has seen in recent years, according to S&P analysts.

Officesin the City of London would be the hardest-hit group of assets in the event ofa Brexit thanks to the high proportion of international financial servicesfirms based in the area.

"Financialservices firms, already under pressure to contain costs, may find an additionalreason to reduce office space in London," the report said.

Manyfinancial services firms based in the City are the direct beneficiaries of EUtrade agreements and so-called "passporting rights" that permit firmsbased in the U.K. to function across Europe, the report said.

Logistics-and retail-focused companies would be less affected than the office segment.

S&Pexpects that some commercial real estate deals will be put on hold until theoutcome of the referendum is known, and that commercial real estate will bemore affected than residential.

Thereport notes that certain companies that S&P covers, such as , have significantexposure to London property, but a relatively low level of dependency on thefinancial services sector. Only 2% of Derwent's rental income comes fromfinancial services tenants, the report noted. In the case of ,the figure is below 10%.

Loan-to-valueratios are at "record lows" in much of the sector, with Derwent's LTVat 17.8% in December 2015 compared with 39.7% in December 2008. This shouldprovide a "cushion" against a sudden downturn in capital values,S&P said.

S&P Ratings andS&P Global Market Intelligence are owned by McGraw Hill Financial Inc.