More Brexit forecasts

CBRE recently published its forecasts on the potential impacts of Brexit following  the EU Referendum. The main points include:

“Brexit” is being predicted to have a negative impact on occupier sectors such as financial services, business services and the tech industries. Market activity in financial services is predicted to be adversely affected by regulation and the possibility that UK-based banks denied opportunities to operate directly in the EU.  UK-based banks have discussed contingency plans to relocate some of their staff out of London. HSBC may move 1,000 investment bankers to Paris. Bank of America Merrill Lynch, Goldman Sachs, and others have also talked about relocations.

Business services (legal, accounting, management consulting) tend to derive revenue from financial services for a substantial part of their business and are often located together in UK cities. Brexit impact on financial services is likely to impact professional services too. Tech industries express concern over limitations on skilled migrant labour. Vodafone has mooted moving its HQ abroad. London‘s tech sector occupiers may be tempted to move to competing European centres. CBRE say that further impact could be felt by the food and hospitality sectors, as they too are exposed to labour market restrictions.

Office market analysts are forecasting The an adverse ‘demand shock’ following the referendum result. Metropolis saw central London take-up halve in the three months leading up to the vote to leave the EU. It is currently too early to assess the impact since the 23rd June, but there is some anecdotal evidence of occupiers putting searches on hold.

CBRE predict that London office demand will fall and rents will be lower than they otherwise would have been. The leave vote will usher in a period of uncertainty in both occupier and investment markets that would last at least two years and possibly more. The optimistic scenario suggests that if the UK successfully negotiates a reasonable trade deal with the rest of the EU central London office rents might actually rise back to previous levels.

CBRE say that impacts on the office market could include jobs being relocated as a direct result of the Leave vote; and jobs which might have been created in the UK but which are created somewhere else because the UK is no longer in the EU. Although economic activity might be depressed more in the short term, the full effect on the occupier market is likely to build over time as leases expire and are not renewed.

CBRE forecast that planned office development will slow, unless a significant pre-let commitment for the scheme has been signed. In Central London over 6m sq ft of office development is underway to complete in 2016, followed by a similar amount in 2017 – but many schemes pencilled in for 2018 and 2019 (which total over 13m sq ft) are likely to be put on hold. Very little of the floorspace due to complete in 2018 and 2019 has actually started on site. It looks likely that many of these schemes will stall until the economic direction becomes clearer.

In conclusion, the impact on the office market is likely to be negative in the short term, but in the medium term the picture is more mixed and it is to be hoped that with a careful economic management, that a soft landing can be achieved.

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