The potential impact of a Brexit dominated the discussion at PropertyEU’s European Debt Finance and Investment Briefing in Frankfurt on Wednesday, polarizing panelists who were unable to agree on just how big the ripple effect could be in continental Europe.
‘It’s really, really difficult to separate the consequence of a single country’s decision from the impact it will have on a truly pan-European basis,’ said Anthony Shayle, head of global real estate - UK debt, at UBS. ‘If we just look at the movement of international capital into the real estate market in the UK, if there is a ‘leave’ decision it is conceivable that international investors might say “actually, we’re not sure about investing in the UK and we’re going to start diverting capital into mainland Europe”’.
‘Conversely, if it’s a stay decision, that flight of capital might have gone into Europe or might have turned to the UK. That alone is a really significant potential shift in international capital flows into real estate markets, not just for the UK but for all the European commercial real estate markets,’ Shayle added.
The looming threat of a Brexit in June was hotly debated at the briefing, with panelists disagreeing on how big an impact it could have if Britain were to exit the EU. Some such as Sascha Klaus, a board member of Hypothekenbank Frankfurt, a unit of Commerzbank, were worried about the potential ripple effect in continental Europe. ‘It could lead to discussions in other countries that could lead to destabilization in Europe. That’s why this vote is so heavily observed by everybody. We’re waiting impatiently for the result,’ he said.
One thing is certain: the UK lending market is in a holding pattern and has been for most of this year, according to Shayle, although it is not entirely attributable to the referendum regarding Britain’s potential exit from the EU but is also down to a shift in international capital flows.
There is already talk of referendum clauses being inserted into property contracts, so that if the vote went a particular way, the contract could be rescinded, Shayle said.
‘If you want to look at how the market is likely to be like post-June, you could take either scenario and imagine that if the lending banks who have been waiting to see what happens find that the vote has gone on a ‘remain’ basis, then you could expect them to want to make up a lot of lost ground,’ Shayle said. That could lead to the compression of margins and a more aggressive lending pattern.
‘Conversely, if the decision is to the leave the EU, then you might imagine that the holding pattern could become further entrenched with more uncertainty, waiting to understand how that exit will be planned and, ultimately, executed. I think there are two very polarised effects, depending on which way that decision is likely to go.’
However, not all panelists were convinced that a Brexit would have a significant knock-on effect in continental Europe. ‘We have ample players here (Germany) fighting for any product that comes to market,’ said Daniel Mair, a partner in Ernst & Young’s German restructuring practice. ‘I think in Frankfurt, some people are hoping that there is a Brexit and that banks will move here and that it’ll be good for the market. In June, I think there will be at least as much talk about the European soccer championship (UEFA Euro 2016) as about the Brexit!’
