There are only a few days to go until the UK electorate decides whether we stay in the European Union or wave it a very long goodbye. There has been much noise made on both sides of the fence, with Remainers and Brexiters seemingly competing to out-do each other in just how far they can escalate their individual portents of doom.
In some way, the constant back and forth between the two sides puts me in mind of a property transaction getting dangerously out of hand. This has a certain irony when we consider the effect that a Brexit might have on the commercial property landscape. Throughout the course of my day, I am speaking to clients fairly frequently on the possible impact Brexit will have and, understandably, there are jitters.
These jitters have even delayed some transactions, with some investors waiting to see how the referendum goes before committing to a purchase. However, the waters are slightly muddied by the fact that some fervently pro-Brexit property investors will still go on investing, even if they do get their way on 23rd June.
However, a case of the collywobbles can spell death for any transaction. Throughout the UK, there are fears over the extent to which Britain’s potential departure from the EU could deter international firms from investing in UK commercial property. There are even whispers of relocation to other European capitals if we do leave. Paris, Frankfurt and Dublin are all likely to benefit from this mass exodus of investment, and the UK is likely to be poorer for it.
This is not simple fearmongering on my part. A recent report from the Royal Institution of Chartered Surveyors (RICS) shows a steady decrease in international demand for UK office, industrial and retail property since the referendum was confirmed last spring. Around 40% of RICS members across the UK said that in the first quarter of 2016 international retailers and others were reducing investment in the UK ahead of the June referendum. In London, 80% said that a lack of certainty around the outcome was holding back investment.
This news should give any commercial property investor pause for thought. If the mere threat of leaving the EU is sufficiently troubling to undermine investor confidence so significantly, then one might reasonably expect the reality of Brexit to have an even more profound effect on the market.
The European market remains a vital source of investment for UK commercial property and we should be in no doubt that the prospect of Brexit carries elements of risk. The aftermath of Brexit would see question marks hanging over much of the UK economy, as long and difficult negotiations were launched to agree a huge range of new bilateral trade treaties. Brexit could mean an immediate short-term drop in the pound, contrasted with a likely rise if we remained.
However, in some respects it is European investors that are likely to see the most negative impact from Brexit. I am in a privileged position in which I am able to do business with a multitude of different nationalities, and my Middle Eastern clients remain sanguine about the referendum.
The Middle East views London as a good place for their money and takes a longer term view than some of their European rivals. The capital benefits from both a strong financial centre and a cultural cachet that few European capitals can rival. There is therefore a strong argument to be made that the UK’s commercial property market will, in the event of Brexit, remain buoyant on the back of continued investor interest outside Europe from those who see the likelihood of post-Brexit uncertainty as an investment opportunity.
Pre-referendum jitters are currently fuelling an investment downturn. The impact, though not permanent, is far from negligible and should not be ignored. Those investors wishing to maximise their portfolio will want to make sure they have one foot in Europe whilst the other remains firmly planted in extra-European opportunities.
