by Emily Perryman
The long awaited Brexit moment is here. After months of preparation and speculation following June’s vote, the UK is finally triggering Article 50 to start the process of withdrawing from the European Union.
The forthcoming negotiations over Britain’s future relationship with the EU are likely to have profound implications for the residential and commercial real estate markets across the region.
While the UK Government has published a White Paper outlining its main Brexit plans, big questions remain over trade policy, environmental regulation, the role of the European Investment Bank (EIB) and the UK’s relationship with third countries like the US and China.
Jon Neale, Head of UK Research at JLL, outlines several of the key areas to watch in the months and years ahead.
Talent and immigration
If EU migration is curtailed it could supress demand for housing and commercial space and damage London’s economic growth.
Neale says: “Given the importance to the economy, it seems likely that the movement of skilled labour will be less restricted; and even for less skilled jobs it could simply mean that migrants have to have a job offer before arriving in the UK.”
There is a net flow of the UK-born out of London, which means EU migration is an important driver of the capital’s growth. What’s more, around 37 percent of the 214,000 new households expected to form in England every year to 2039 can be directly attributed to migration.
If the UK leaves the EU Customs Union and Single Market it may have to pay and charge tariffs on goods leaving and entering the country.
Car companies with sites in the UK could face a Common European Tariff of 10 percent. Neale says this would damage the business case for having manufacturing facilities in the country, the impact of which would be most severe in the North and Midlands.
Non-tariff barriers such as “proof of origin” tests could disrupt logistics supply chains and impact the retail sector.
Material and labour costs
Although bricks can be sourced easily and cheaply from within Britain, modular housing sources its materials from countries such as Germany and Sweden. Neale says these supply chains will be affected by fluctuations in the pound, which could be compounded by the imposition of tariffs on some materials.
In addition, labour costs could rise if EU construction workers move to countries where pay is perceived to be higher and if there are constraints on migration.
Housing and infrastructure
Neale expects there to be a new focus on housebuilding after Brexit to try to overcome Britain’s housing shortage, which has produced high rents and prices. In particular, there could be higher levels of council and housing association homes. The Government has already tried to stimulate supply with the introduction of a £3 billion home building fund.
Brexit itself could lead to a requirement for more civil service staff. “This will boost the demand for office space from the public sector – probably in the regions, given the more general focus on moving staff outside London, which has already produced requirements for a number of regional civil service hubs,” notes Neale.
Brexit could allow the onerous Environmental Impact Assessment and Habitat Regulations Assessment to be reduced and streamlined to the benefit of developers, mainly in the residential sector. However, Neale says this could be politically difficult because the regulations are popular and many began in the UK before moving into EU law.
There is a chance that some EU environmental laws could be reviewed. Over 80 percent of the UK’s laws in this area have arisen directly from the EU, covering waste and recycling, water pollution and energy efficiency in buildings.
Reviewing or repealing laws could delay the shift towards zero carbon buildings and result in some protections being viewed as a “nice-to-have”.
Neale says businesses should continue with compliance as usual and also look at how to future-proof assets based on future energy prices, resource shortages and occupier expectations.
European Structural Funds
It is unlikely the UK will retain access to the European Regional Development Fund, which has been a key stimulus for development in less prosperous parts of the UK. The fund has provided innovation centres in places like Cornwall and Yorkshire which can help feed occupiers into larger, commercial schemes.
“Given the importance of some of these funds to the regions, it will be incumbent on the Government to demonstrate how UK Government funding can be used to replace this in the decade to come,” Neale says.
The European Investment Bank
It is not yet clear how the UK’s 16 percent stake in the EIB will be dealt with. The EIB has funded projects like Crossrail, the Thames Tideway Tunnel and the M8 Edinburgh to Glasgow motorway. Its funding to small businesses has also helped boost demand for smaller space.
With negotiations poised to start imminently, the clock is now ticking to agree answers to all of the points above and more. And the outcomes will shape the UK and the EU for years to come.