6. A BAD DEAL

In what way might a deal with the EU be bad for UK property? There are two things to look at here: immigration and the services sector.

One of the driving factors behind Brexit was a desire to limit immigration: The Conservative Party promised in the run-up to the vote and afterward to limit net immigration to the UK to below 100,000, compared to the current figure of closer to 350,000. Ending the free movement of EU citizens to come to the UK was a big part of achieving this aim. But this could have a profound knock-on effect for many sectors in commercial real estate.

UK construction labour costs are already rising, and so limiting immigrant construction labour would have a big effect on UK development, which Mayor Sadiq Khan has already said is a big issue for London.

Other sectors that rely on low-cost labour include retail, hospitality, restaurants and care homes. These sectors are already facing major structural headwinds which are causing operators to go out of business. Various lobby bodies in multiple sectors have talked about how limiting immigration would reduce the availability of labour and therefore drive up costs for their members. That creates a risk of more insolvencies and greater voids for landlords.

Then there is the question of the service sector. While tech takes a lot of the headlines, the service sector sill accounts for a greater proportion of office takeup in large UK cities like London, Manchester and Birmingham.

In conversation with Tristan Capital last month Sir Ivan Rogers, the Permanent Representative of the United Kingdom to the European Union from November 2013 until his resignation in January 2017, pointed out one of the paradoxes of Brexit negotiations: Previous prime ministers like David Cameron have trumpeted the importance of the service sector to the British economy; by some estimates it contributes as much as 80% of gross domestic product.

But Theresa May and Boris Johnson have been quiet on the need to get a deal in place that is good for financial services and other service sectors, having favoured sectors like manufacturing via their focus on a customs union.

Rogers pointed out that the EU is playing hardball with Switzerland about giving its businesses financial equivalence with those from EU countries. That is a way of sending a message to the UK that its firms will not easily be given equivalence either. That is seen as very important if firms from the UK are to be able to seamlessly do business with those operating within the EU, thus allowing London, and to a lesser extent other big UK cities, to maintain their preeminence in global financial and business services.

There have not been major job losses so far, but if firms could not easily operate with the EU from London, some jobs would be forced to move.

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