The UK’s vote to exit the European Union has turned investors’ focus onto occupier prospects.
With economic confidence in the UK taking an immediate – “but not significant” – hit, CBRE’s head of research, Miles Gibson, says international occupiers will start formally considering whether they should move operations elsewhere to benefit from single market access.
Gibson said CBRE foresees “hesitancy” among occupiers as the impact on sentiment affects decisions by manufacturers, retailers, and office occupiers.
“This will definitely be a ‘long goodbye’ because lease breaks or expiries may not be imminent,” he said. “We do not expect an immediate exodus.”
Nevertheless, US bank Morgan Stanley has reportedly been looking to move as many as 2,000 staff out of London – possibly to Dublin. The Irish capital could stand to benefit from such moves. Ireland has gradually cut corporate tax from 50% in the early 1980s, to just 12.5% today.
In the UK, development and construction will be affected by Brexit, Gibson said.
“Developments which have not started on-site are likely to be delayed until there is more clarity about the level of demand in the economy,” he said.
“Planned office development is most likely to be affected, and residential development least likely to be affected, though even in the residential sector housebuilders will proceed with caution.”
Guy Grainger, JLL’s chief executive for EMEA, said that, in the short term, a weakening in occupier demand could occur, with businesses taking more time to consider investment decisions.
“The impact on rents may be limited by tight supply, but activity will be adversely hit while initial uncertainty about direction and timing continues,” Grainger said.
Considering the impact on central London offices, Knight Frank’s commercial research partner, Patrick Scanlon, said in the short-term, it can be expected that some occupiers will delay committing to new office moves as they take stock.
“London represents the largest market for euro-denominated trading, and major banks with euro trading desks in London may find that they need to relocate some of these functions to office markets within the EU,” he said.
While this does not necessarily mean a wholesale relocation, we should expect some vacant space from banks to come to the market once this restructuring has taken place.”
Scanlon said any businesses with a large London presence are focused on markets outside the EU, and the UK’s exit from the EU will have a limited impact on them.
Since the general election, there has been above-average office take-up, he said, suggesting firms have adopted a business-as-usual approach; global operators such as Deutsche Bank, Thomson Reuters, Ashurst, Google and Facebook have made significant long-term commitments to London.
“There is likely to be some release of office space as businesses tighten their belts to weather the period during which trade treaties are being negotiated,” he said, pointing out that currently availability levels are particularly low and the development pipeline remains “fairly limited”.