The likely impact of Brexit on the commercial property sector

In the immediate aftermath of the vote to leave, we have seen shares in Barratt Homes and Taylor Wimpey (to name but two) fall by over 20%, and the pound down 9.4% against the Euro and 9.8% against the dollar.  The markets have seen the gains of 2016 erased almost overnight and the turbulence on the markets led to momentary suspension of trading to protect Barclays, RBS and no doubt other banking shares. 

Capital intensive businesses and real estate investors do not react well to uncertainty.  We are in a period now of political fallout and economic and financial volatility, but as with all economic models, there will be both winners and losers over the short term, medium term and long term.

In the short term the East Anglian tourism sector could see a boost, with EU visitors making up a small proportion of the overall visitors to the £7bn tourism industry in East Anglia.  There could be an increase in EU citizens visiting Essex, Suffolk and Norfolk given our close proximity to the capital and numerous airports, including London Southend, on our doorstep.  In turn, the youth of today - who bore the brunt of the 2008 recession - may see tourism as a sector where they can gain jobs and qualifications.

Given the market volatility to date, the development and construction sectors are likely to see a slow down of activity.  However, the falling price of sterling, and possibly borrowing costs, will create enormous potential for overseas investors, even if the residential sector slows or stalls initially.  Opportunistic investors will no doubt take advantage of the uncertain conditions, and as a result of prudent decision making and liquidity in investors and businesses, the number of those investors may be far greater than those that existed during the 2008 crisis.

Whilst 36% of the Institute of Directors’ members said they would cut investment in their business, just under 50% said Brexit would not change their investment plans.

Ultimately, decision making may slow as buyers, sellers, investors and businesses adjust their strategies, but in the longer term, the UK was and remains attractive for real estate due to its regulated, robust and resilient market.  The decision to leave does not detract from the fact that people still need somewhere to live, there will still be consumers and manufacturers, and businesses will be looking to move forward and develop.

Let’s be positive as we work together to grasp those opportunities.