Reduced dealmaking, dampened sentiment from developers and falling house prices will be the short term effects of Brexit on UK property markets, a top real estate agency has warned.

With just weeks to go until the UK leaves the European Union, there remains little clarity on the terms under which it will do so, leading analysts to predict a dearth of deals in the investment markets.

“Economic and political uncertainty in the UK has mounted as parliament battles over what ‘version’ of Brexit to agree upon,” wrote the team at property services firm Avison Young in a new research paper published this month.

“It is unlikely that a deal will be reached until the eleventh hour and we are increasingly expecting some reworking with the likelihood of a short extension to the exit date.”

In the paper, Brexit: Implications for real estate, Avison Young analysts led by head of research Daryl Perry said they expect the UK and London in particular will “remain resilient” despite “significant headwinds” including volatility in sterling and weak economic growth.

Nevertheless, the UK’s investment market is likely to see a subdued start to the year. “We expect the market to slow in the first quarter, as both buyers and vendors take a ‘wait and see’ approach until pricing is established.”

There could, however, be a “Brexit bounce” in investment deals later in the year, the report said, “following a period of inertia”. When money starts to flow again, Avison Young said, industrial assets are likely to find favour.

Meanwhile, many investors will reduce their exposure to retail properties, the firm predicts, while London’s office sector will see a drop in deals given that it is “perhaps most exposed to Brexit”.

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