Will Brexit be the straw that breaks the back of property’s long bull run?
Quite possibly, depending on your time frame. But would that be such a bad thing?
The in/out question was apparently the overwhelming talking point at Mipim this year. Central London office deal volumes more than halved in the first quarter, according to Lambert Smith Hampton, as institutional investors succumbed to an attack of the vapours. But would Brits voting to take charge of their own affairs lead to a catastrophic flight of commerce and capital?
First, it is only fair to declare my own hand. I passionately love Europe. But I passionately hate the EU. In my mind it is an anti-democratic, anti-enterprise, corrupt, corrupting, inefficient, ineffectual French-run gravy train that is dragging Europe towards disaster. And, no matter how much Barack Obama and David Cameron delude themselves, it is totally, utterly unreformable. (All views are my own and not those of my employers, etc, etc.)
It seems, however, that much of the property world thinks differently. A powerful, but far from universal, lobby is campaigning to stay put. Robert Noel, chief executive of Britain’s largest property group Land Securities, told the Financial Times: “Rents and values would both fall. Any repricing would be more drastic than after a general election. The demand shock will last longer than usual.” The theme was echoed in the same paper by his counterpart at British Land, Chris Grigg.
The dangers of Brexit being mooted have centred on: an ‘exodus’ from London of US and European banks (claimed by ratings agency Moody’s); economic uncertainty as treaties are renegotiated, delayed or cancelled (the PM and US president); and reduced supply of labour, from eastern Europe in particular (Berkeley Group chairman Tony Pidgley).
Let’s not make any bones about it. Britain leaving the club could well cause short- and possibly medium-term economic disruption. For fellow Brexiteers to claim otherwise is disingenuous or plain dumb. For two or three years, the uncertainty surrounding trade deals, immigration and so on will deter many companies from making big, long-term commitments. And that’s without the French throwing a sulk and cajoling their partners to actively freeze out Britain.
Other claimed risks appear more tenuous. Some US banks would possibly have to employ more staff in the eurozone centres (but it would probably be Frankfurt rather than Paris, and they would probably be additional to London employees rather than relocating them).
As for Berkeley and other developers running out of Polish plumbers, border changes will take years to sort out, and by then a series of bilateral or multilateral deals (of the sort on which the original union was founded) would address that issue.
But in the longer term, unshackling the British economy from the fetters of an increasingly moribund continental bloc would boost growth, many believe. I recall hearing Sir John Major arguing on Radio 4 that Britain had been the “sick man of Europe”. Now it is the EU that is the sick man of Europe.
Latest eurozone unemployment stands at 10.2%, just over twice the UK’s 5%. Annualised GDP growth in Britain over the past couple of quarters has been running at 2.1% (despite Brexit fears) versus 1.6% for the eurozone (thanks largely to Germany, the true engine room of the single currency). EU mandarins seem more intent on fighting Google and other supposedly ‘anti-competitive’ US companies (no doubt nostalgic for the days of France’s Minitel internet predecessor) than liberalising their own hopelessly restrictive trade leanings.
So what if we pull out? Economies and property markets always adapt, especially when they do not have to wade through the treacle of regulation and intervention. Interest and exchange rates would find a new level - as would asset prices, probably downwards in most cases, particularly property. But how many in the industry do not privately believe - at least in the case of London residential and offices - that they are overheated in any case? Brexit would just bring forward the inevitable.
And then it would be back to the races again. Property has always been a cyclical sector. Periodic clear-outs usher in new waves of entrepreneurs. Brexit - bring it on!
Alastair Stewart is an equities analyst and commentator