Investors waiting for a 'Brexit bounce' shouldn't hold their breath, as the uncertainty following the EU referendum in the UK is likely to continue for months to come, according to Robert White, founder and president, Real Capital Analytics, speaking at PropertyEU's Outlook Investment Briefing in New York on 29 June.
In the meantime, opportunistic money will target the UK, but most investors will turn to European cities seen as an alternative to London, and to Germany for its safe-haven status.
'Markets are likely to be locked up through the summer and into the fall, while investors wait for guidance as to how things will work out,' White said. 'There will be some winners as cities like Dublin, Frankfurt, Amsterdam and maybe Paris benefit from the potential transfer of offices and jobs out of London. It will be interesting to see the positioning of those markets in the near term.'
So far there have been many rumours and few facts, but many companies and banks are evaluating their position in London and some are already quietly strengthening their offices in mainland Europe. For many US, Middle Eastern and Asian companies London is not just the headquarters of their UK operations but 'a beachhead for the rest of Europe, a place from where you can hire people from all over the continent,' said White. All that has now been thrown into question.
Some companies will wait for developments, but others will prefer to act swiftly. 'We have just opened an office in Amsterdam,' said White. 'I would also look at Germany now. I favour the German cities and Dublin.' The Irish capital has tax advantages as well as the benefit of English.
Germany will be a winner
At country level 'the immediate winner will be Germany,' said Damian Harrington, head of EMEA Research at Colliers International. 'It is fairly obvious it is seen as a safe-haven investment.'
For investors who like certainty and a clear time frame, the prospect of months of waiting for UK/EU negotiations to even begin and a much longer wait for the outcome to be known is not welcome.
The understanding is that negotiations to unravel over 40 years of legislation and trade deals will not begin until the UK Government has invoked Article 50 of the EU Treaties, which is unlikely to happen until very late this year or early in 2017 as a new British prime minister has to be elected first.
Article 50 sets a two-year target for completion, but that deadline can be extended by mutual agreement. 'The interdependence is such and the complexity and number of issues is such that is likely to take longer than two years,’ said Alexander Fischbaum, managing director of AF Advisory. 'It is uncharted territory, so the period of uncertainty will continue for quite some time.'
There will be no quick fixes, so 'if investors expect certainty and stability before committing, then they will have to wait for a long time, at least two or three years,' said Charles Ostroumoff, director at Arca Property Risk Management. After that, 'the market will respond as soon as there is clarity on the negotiations,' added Harrington.
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