Brexit: A Continent Divided – Consequences for Mainland Europe
23rd June 2016 may well go down in the books of property investment historians under the “Days When Stupid Mistakes Were Made that Caused Market Upheaval” section, not far from the entry for 15th September 2008. If we are to judge the impact of Brexit on the UK property market based on what has happened in these days immediately after the result, things look bleak. Residential property prices are forecast to fall for the next couple of years. Shares of estate agents have already reacted, falling up to 37% over two days. Commercial property in the UK faces a tough road ahead too, with major investors warning of downward pressure on these property values. One thing is clear, however: for all the well-heeled expertise in the property market no-one actually knows what is going on or what the world will look like 12 or 24 months from now.
As the political dust settles and some calm returns to markets, strategies – and contingency plans – will be drawn up to navigate through the headwinds and capitalise on any opportunities. What are the consequences and opportunities for Mainland Europe?
UK investors with Pound Sterling liabilities will find it tougher to get the desired returns on the Continent. However, as the investment wheel keeps turning, lower competition will be welcomed by domestic investment managers who would previously have been outbid by aggressive UK purchasers. There is therefore no fundamental reason why activity on the Continent will significantly decline.
The employment picture, meanwhile, will shift dramatically in favour of the Continent in the coming quarters. The professional sector, especially finance and technology is already reacting by exiting in the opposite direction of Brexit. This will create opportunities for the Continent to strengthen its financial centres and start-up hubs. In the short term, this will mean increase in occupancy and office demand in those cities. In the long term it will lead to greater productivity, competitiveness and diversity, which will drive demand for property.
There is a fear that the political crisis triggered by UK’s Leave vote spread to the Continent, it will drag investment and consumer confidence and be disastrous for the wider European economy. This could result in a tumultuous property investment landscape as investors hold back investment. This is unlikely to happen, however. While we may see a repeat of the muted UK investment figures for the beginning of 2016 for the UK uncertainty will soon give way to the need to invest. The fundamental strength of national and pan-national institutions, the diversity of the labour force, and the inherent stability of the political systems that support them, should provide a stronghold for growth.
Throughout European history, populist agendas have never lasted long, nor indeed have they brought a positive lasting legacy. Whether called single market, political integration or federalisation, Europe will never be anything more than a continent united in diversity while sharing several similar values. For advocates of populist and protectionist agendas who are flying the ‘immigration’ and ‘take back control’ flags – good luck. The only bet investors should make is one against them and everything they stand for.
