COMMENT: The Brexit Hokey Cokey

It’s not so much the 'in' or the 'out' as the 'shaking it all about' that should concern us, writes David Hutchings, Head of EMEA Investment Strategy, Cushman & Wakefield, in a commentary on the upcoming referendum on whether Britain should stay in the European Union.

With the ink now dry on a deal for the UK’s new settlement with the EU, the referendum in June could be the most significant decision made by the UK electorate in a generation. As such, its importance may be being underestimated behind the fog of politics, both in terms of the consequences of the decision as well as the uncertainty accompanying the process.

As commentators start to guess what an exit may mean, however, it is worth remembering that the long-term implications can’t be judged until the terms of any divorce are known. Who can say what access the UK would have to EU markets, particularly in financial services? Only time would tell.

The short-term picture is somewhat easier to read, but is likely to be gloomy, with sterling down, decision making slower and forecasters suggesting a negative hit to GDP. Indeed, it is perhaps not the decision itself on being in or out that we have to worry about but rather the way everything will be shaken up in the process. If the UK votes to leave, the uncertainty could, in fact, linger over five or more years as negotiations are concluded and businesses react.

Although Brexit would of course produce winners as well as losers, a notable risk must be the potential for the UK itself to break up as regions pull in different directions. In the long term, all areas could expect to lose some occupiers. However, London could still be a winner overall, able to stand alone as an independent financial megacity: the Singapore of the north perhaps, continuing to rival New York as the foremost global hub market. Many regional UK markets, however, would face a tougher ride amid uncertainty over the UK’s role in Europe.

The implications for the rest of the EU could also be significant, particularly at a time when existing linkages such as Schengen are under pressure. On balance, the EU will likely be weakened by the loss of a relatively large trading and military power, along with implications for supply chains across many industries. A bigger risk, however, may be in opening up questions on a range of what to date have been considered 'irreversible' decisions – from open markets to national unity.

The implications of the UK vote could therefore be significant at many levels, and although we can’t know more until events unfold, it will clearly affect investment strategy in Europe. While London may be in a stronger position than regional UK cities, it could still be less favoured by some investors and other cities – globally as well as in Europe – could gain at its expense.

In the short term, the referendum could delay some investment and occupational activity. However, the uncertainty may drive demand higher for super-prime assets whilst for average property we may see a slightly slower Q2, with some demand delayed and some deflected to other parts of Europe.

Nevertheless – ending on some upside news – if the UK votes to stay, at least for the short term we may return to a significantly better than 'business as usual' environment. A 'yes' vote could potentially trigger an appreciation of the pound, a release of pent-up spending and a bounce in the property market to end the year. After all, markets love the certainty of the familiar and hate to be too shaken up!

David Hutchings
Head of EMEA Investment Strategy, Cushman & Wakefield