In the few months since the UK unexpectedly voted to leave the EU, real estate investors have been grappling with what Brexit will mean for real estate. Given the lagging nature of economic data and property valuations, it is too early to say. But it is sensible to consider how the consequences are likely to vary across geographies and property types. Assuming an impact with a given degree of severity generally, which sectors are likely to be hit more than the market as a whole? Which should do better?
The most likely suspect for potential Brexit fall-out is widely and correctly thought to be the City of London office market. “Passporting” rights that allow UK-based financial institutions to do business across the EU are at risk of being withdrawn. If that happens, the London office space footprint of banks, insurance companies, and asset managers could shrink. In the negotiations, passporting will be linked with other difficult issues, especially immigration. As such, uncertainty on the issue is likely to be protracted. Meanwhile, the City is facing a wave of new supply and cyclically high rents, suggesting downside potential is present even without the Brexit-related existential threat.
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