8. THE UK LEAVES THE EU WITHOUT A DEAL, AND IT IS REALLY BAD FOR UK REAL ESTATE
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It is hard to plan for such an unprecedented event as a no-deal Brexit, especially when it comes to the day-to-day operation of occupiers across all sectors of real estate, but here are a few worst-case scenarios.
Inflation spikes due to the introduction of tariffs on goods coming in and out of the UK. This has a massive impact on retail: Retailers that need to import goods or materials either have to pass the increases on to consumers, or take a hit on their margins. In either case, consumer spending drops, hitting the already challenged retail sector.
Even the powerhouse logistics sector is impacted: The value of warehouses is uncertain in a world where manufacturers and retailers don’t know how easy it will be to import or export goods.
In the investment world, all but a few very brave overseas investors pull away from the UK until it becomes clear exactly what impact a hard Brexit will have on the UK economy. And this halting of investment is important beyond the short term, and beyond commercial property. It has an effect which is hard to quantify, but will have a big impact on the UK economy in the longer term.
“We will be going into a recession just when developers should be getting busy,” APAM Executive Director Simon Cooke said. “People should be buying good quality town centres and making them fit for purpose. They should be buying obsolete office buildings and business parks and science parks and revamping them. There has been a huge inward investment in tech, but the built environment hasn’t kept up with it. It should be looking to capitalise on that, and help these sectors to grow in the UK. But will the capital be brave enough?”
In this scenario, the recession in real estate is not insular; it actually hinders the growth of sectors like tech which might be resilient in the face of a no-deal Brexit.
Even if the UK leaves the EU without a withdrawal agreement on 31 October, it will still, in the medium to long term, look to negotiate a new trading agreement with the EU: That after all was the point of Brexit. It may take many years, but a deal on trade is the ultimate goal.
Will the UK negotiate a good deal with the EU?
For what a good deal with the EU might mean for UK real estate, go to section 5.
For what a bad deal with the EU for UK real estate might look like, go to section 6.
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