The shocking murder of UK parliamentarian Jo Cox on Thursday has thrown the EU referendum campaign into disarray in a week that the odds have turned in favour of the Brexit camp.
Financial markets started heading south this week and EU lawyers are eyeing legal options to strong-arm Britain should the UK vote to leave, the Financial Times reported on Friday. As the Leave campaign edges ahead in the polls, FT quoted Finland’s outgoing finance minister, Alexander Stubb, as saying he feared this could be 'the Lehman Brothers moment in Europe'.
How it could even get to this point is beyond the remit of this opinion piece, but suffice it to say that as an Australian-born national living in the Netherlands I have always had reservations about islanders. Too often it seems to me that those who live on islands like the UK or its former colony have a tendency to turn inwards at key junctures and lose sight of the bigger picture.
Let us not forget that open international trading relations have provided a foundation for relative financial and geopolitical stability in this part of the world since the second world war. The EU engine may be flawed, but it is an undeniable fact that Western Europe has not been a warzone for more than 70 years.
Financial geeks get it, as columnist Gillian Tett indicates in her column in Friday’s edition of FT. 'To enable British voters – and global investors – to have a fully informed debate in the run-up to polling day, we need financial geeks to speak up,' she urges.
Most of the real estate 'geeks' I have spoken to are overwhelmingly in favour of remaining in the EU. This is supported by a recent JLL survey of top international corporate occupiers and UK-based investors into their business attitudes to the EU referendum which was released this week. The poll found that 80% held the view that UK will reject the call to leave the EU.
Wishful thinking
Unfortunately, as the referendum draws closer and the polls lean towards a Brexit, that view now seems like wishful thinking.
So what are the potential scenarios if the UK does indeed leave the EU? The question was hotly debated at our packed Outlook Investment Briefing earlier this week at the offices of Colliers International in London.
The fear of Brexit is spooking the financial markets, but the unprecedented volume of international capital seeking to invest in European property is such that prospects are positive for real estate, experts agreed.
'What has not changed and will not change is the weight of capital, and the huge appetite international investors have for higher yielding assets, which is enough to keep Europe going for at least a decade,' Dr Walter Boettcher, research director and economist, UK & EMEA at Colliers International told the record 100-plus audience. 'International investors, especially sovereign wealth funds, are already active in the market regardless of the referendum. They have not changed their outlook much.'
Sterling will be the first casualty of Brexit, Boettcher said. 'The results will be magnified. 'The markets will move against sterling in a big way, any weakness will be exploited. We have already seen for weeks the close correlation between the pound and the polls.'
As the governor of the Bank of England Mark Carney has clearly said that he will use all the tools at his disposal to stop the economy being too 'compromised', Boettcher expects an increase in interest rates: 'The impact would be a significant re-pricing, what now is a moderation of yields would lead to immoderation.'
The weakening of sterling (-10 to -15% according to most forecasts) would also work in favour of residential real estate, especially prime, as foreign investors would leap at the opportunity to buy cheaper assets. For commercial property it would be a different story, with offices in the City and the occupier market being the worst hit.
Short-term investors will suffer most
The impact on investors in the UK will be different depending on their time-frame. 'Short-term investors will suffer the most,’ said Boettcher. 'Private equity and developers will be out, there will be redemption sales, while opportunistic and long-term investors will come in after re-pricing. There will be an unpredictable phase, but after a while stability will return. Brexit is alarming in the short term, but in the longer term it could lead to interesting developments.'
For now, however, the uncertainty surrounding the outcome of the referendum is already having repercussions, not only in the UK but also elsewhere in Europe, even in Germany's highly stable residential sector. Earlier this week, listed residential landlord Adler Real Estate delayed a planned €150 mln convertible bond issue until 15 July because of the financial market uncertainty generated largely by the upcoming Brexit referendum.
Real estate may not fall off the cliff if next week's vote is for Brexit. But there is no doubt that there will be more bumps in the road if it does.
Judi Seebus
Editor in Chief PropertyEU
