Written by Holtby Turner
Last month some of property’s most interesting leaders in fund management joined me for a dinner debate I hosted with Jos Short, of INTERNOS Global Investors. Our room at the Westbury Hotel was the backdrop to the much-anticipated topic Jos dug into: the impact of Brexit for global real estate funds, investors and developers.
These were explored amidst the implications of the U.S. presidential elections and continued impact of BRIC’s macro events. Chatham House rules encouraged free-flowing conversation, and even heated debate at times, and confines what can be shared here.
What did come out is that the lack of a detailed plan from the Brexiteers means it’s going to take considerable time to get clarity.
There will be winners, and there will be losers, this we know. Arguably, our neighbours in Ireland will benefit most from occupiers vacating London. Speculation over who’ll be in the losing camp exposed risks for construction. With most contractors committed to pipelines of works for the next 24-36 months at least, the ripples are likely to be seen in 2018/19.
Within the property advisors, the biggest immediate hit to revenues is certainly capital markets. Transaction volumes were down in the run-up to the EU referendum, and everyone was expecting a flurry of deals if it was decided to remain.
However, there have been many Brexit stories of deals being pulled following the vote and now there seems to be a period of stagnation as investors are unwilling to commit capital, and most are waiting to see if we are going to have a significant pricing correction.
From conversations we are having with agency clients, capital values are likely to fall 5%-10% in the next six months. However, unless vendors see it this way, they will be unwilling to offer discounts at this time.
Fund managers have seen very different reactions from various groups of investors. Some see Brexit as a great opportunity – these are mainly private equity funds who may look to deploy more capital in the U.K. because there will be cheaper deals available. Others round the table were more measured, believing it was all speculation until Article 50 is actually triggered. Already though, the thin wedge of a Brexit-led withdrawal was evident with some investors not even wanting to look at U.K. options.
French funds have been fast to gain from the number of unsettled staff in the U.K. making a push to attract returning French investment management staff. Fair enough we nodded, indicating we’d probably do the same if the shoe was on the other foot.
As one of our guests rightly pointed out, the conundrum we have is that we want to eliminate uncertainty but we also need to make sure we give ourselves the time needed to successfully renegotiate trade agreements. If one believes Martin Sorrell, post Brexit negotiations and agreements could take 10 years to complete!
A couple of days after our dinner debate, I spoke to several global U.S. investment managers with their Euro HQs in London. I asked whether they would continue to opt for London as their Euro hub and stepping stone for Euro investment. The vast majority thought they would stay here. Why? Because they said they liked doing business in England, with the British.
Only time will tell how that pans out. Roll on September…
