This week, Chancellor George Osborne warned of a ‘permanently poorer’ UK if it were to leave the EU, with Treasury analysis saying that by 2030, UK national income could be 6% smaller. Debates are ongoing, trying to convince the nation why we should either stay or leave. Some say we’ll be better off out of the EU, while others see a bleaker future. To the vast majority, Brexit is still confusing and surrounded with uncertainty, especially in regards to the commercial property sector. Deals are being held off because of it, as things remain unclear. So what does it all mean for the sector?
What the Experts Say
A document published by Savills in March takes a look into the impact of the EU referendum on UK commercial and rural markets, both pre and post. We will be highlighting the commercial part of the report.
The current market is experiencing lower levels of activity compared to 2015. Many deals are waiting for the referendum to pass. In mainland Europe, there is a higher level of indecision amongst EU-domiciled investors. However, H1 2016 isn’t expecting a dramatic change. Possibly, the biggest affected sector would be retail, as consumer confidence will dwindle in the short term as the referendum edges closer.
Savills said, if the decision is to stay, then new terms that were negotiated in February 2016 means “we forecast a rapid return of confidence leading to higher than normal deal volumes in Q3 and Q4 2016.” They also forecast a potential hardening of yields due to competition.
If the UK leaves, Savills says that there will be a two year period while the exit terms are negotiated, adding “Some occupiers are already preparing contingency plans for this and there is likely to be a period when they are more likely to renew leases rather than move while they make their own plans about their European strategies.
In the London office market, major London corporates won’t be moving their businesses within the EU from the capital. However, the future headcount may impact the take-up over medium to long term as they’ll have a stronger presence outside the UK.
Retail property may experience medium-term impacts. Some retailers suggest employment costs might fall in the UK due to some EU related legislations, but overall the change would be minimal.
Impact to Industrial occupiers would be limited as many manufacturers rely on a wide European supply chain. The biggest change would most likely be short-term with the increased operational and tariff costs for exporters.
Investment activity in the UK in the short term will decrease due to some investors not committing to the UK. This will change once the strength of the pound, legislation and taxation is made clear. However, a Brexit would possibly hasten UK property yields.
What do you think about these findings. Do you envision a dark future in a UK-less EU or is the idea of independence tantalising? Let us know in the comments below.