Five years on: The Impact of Brexit on UK Real Estate

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Five years on: The Impact of Brexit on UK Real Estate

Wednesday 23rd June was the five-year anniversary of the UK voting to leave the European Union. But five years on, how has Brexit impacted the UK real estate market?

The result of the EU referendum in 2016 delivered a bombshell to the UK real estate market. Within 24 hours, shares in many of the largest UK REITs suffered double-digit declines. As the weeks progressed, redemptions started hitting retail funds, market activity slowed, and open-end property funds had to suspend trading as retail investors rushed to pull capital.

But, after the initial panic and confusion, how has the UK Real Estate market performed?

Since 2016, a noticeable yield gap has developed between London and other European cities, with uncertainty in the UK market causing investors to exercise caution. However, since the ratification of the withdrawal agreement at the end of 2020, the future relationship between the UK and EU is more clear-cut, leading Sterling to somewhat stabilise.

Consequently, foreign investors are starting to exploit more opportunities in major UK cities, illustrated by the new wave of Asian investment into London, with Hong Kong investors acquiring two of London’s iconic landmarks, the Cheesegrater and the Walkie Talkie. This increased investment not only promises to narrow the yield gap but also create a ripple effect, which is expected to benefit other UK regions in the near future.

The debate surrounding Brexit and arguments over the future relationship with the EU has dominated domestic policy since 2016, side-lining other political priorities. Eight years after George Osborne delivered his ‘Northern Powerhouse’ speech, the UK’s ‘Levelling Up’ agenda is finally seeking to readdress the UK’s imbalance by encouraging regional investment. Colliers’ chief economist, Walter Boettcher argues the abandonment of domestic policy was the most destructive aspect of the Brexit process, stating, Brexit postponed much of what I consider to be powerful regional development agendas that the government wanted to pursue.”

So, has domestic development activity slowed since 2016?

Various investors have seen Brexit as an opportunity to exploit the weak pound, and figures from the Deloitte London Office Crane Survey, show little discernible shift in the level of new developments since 2016.

It must be acknowledged that the end of free movement of labour and the adoption of a new points-based application system has seen an exodus of EU construction workers and left some contractors worried about the prohibitive costs. Although the threat of a no deal withdrawal and the knock-on effect on material imports have largely been addressed by the signing of the withdrawal agreement.

Five years since the Brexit vote, the UK real estate market has been able to ride out the initial disruption of Brexit. Investment is increasing and, with the trade deal now in place, there is a lot to be positive about domestically and on the international stage.

Becs Danner, Editor and Copywriter, Innesco

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