Brexit impacts real estate as investors favour Germany over UK

08 November 2017 Consultancy.uk

As British researchers focusing on all sectors of the UK economy continue to attempt to confirm if Brexit will have a positive or negative impact on the market as a whole, new figures suggest investment-friendly sentiment is in the early stages of turning its back on Britain. Despite record investment in London, particularly in early 2017, German real estate opportunities have eclipsed the desirability of their UK counterparts for the first time – possibly in anticipation of a wider financial shift toward the mainland following Britain’s divorce from Brussels.

Following a 2016 referendum which confirmed the United Kingdom’s intent to leave the European Union, speculation has been constant and varied regarding the impact that Brexit would have on the economy. Previously this year, Chief Financial Officers told researchers from Deloitte that they were, in fact, upbeat about the prospects arising from Brexit. Just three months later, however, the same business leaders stated that they were unnerved by the unknown quantity of Brexit – with turbulent talks having been hamstrung by the UK government’s loss of its Parliamentary majority – following a calamitous snap General Election which had been intended to strengthen Theresa May’s negotiating hand.

Earlier in November, a new poll of almost 3,000 executives across 43 countries, performed by Big Four professional services firm EY, claimed that investors across all industries still regard the UK as an attractive long-term prospect. The attraction was largely attributed to the pound's Brexit-induced slide, which made targets cheaper. This is exemplified by the record real estate deal activity in London at present. In the first half of 2017 alone, consulting firm AlixPartners found that £5 billion in Chinese capital was sunk into Britain’s capital city, as the low pound continues to make the present financial hub of Europe an attractive prospect, despite an uncertain future for links with the continent.Brexit impacts real estate as investors favour Germany over UK

Just one week later, however, a new study from online real estate investment platform BrickVest has suggested the opposite. The online financial marketplace allows clients to invest in institutional quality real estate globally. Leveraging data from its platform and a survey of 3,500 professional real estate investors from a number of the world’s largest economies, the company has concluded that the continuing saga of Brexit is having an impact on the attractiveness of UK property. According to the analysis of BrickVest’s latest Commercial Property Investment Barometer, 33% of investors named Germany as their preferred destination.

This is the first time that Germany has been chosen as the number one region to invest in ahead of the UK, which was selected by just over a quarter of respondents, at 27%. Despite a brief uptick over the first quarter of this year from 32% to 33% favourability, the UK had been steadily declining since, falling back to 31% in the last quarter, before this Barometer’s sudden 4% drop. This would be consistent with the previously mentioned AlixPartners data, which was based around activity in the first half of the year – and while deal levels in London will still have seen a record breaking 2017 in spite of any fall in interest now, it may point the way to further economic trouble for the UK, as the 2019 deadline for negotiations with Brussels draws ever nearer.

According to this new data, UK, French, German and US investors are now less favourable towards the UK since last year, with the drop off being larger among overseas investors than British based buyers. UK investment intent dropped from 46% to 45% over the last year, compared to the five-point drop of US-based investors’ intent to 21%, a three-point decline from German professionals to 18%, and a drastic nine-point fall from French investors, who now have 19% favourability toward UK opportunities.

Financial trend

Since the Brexit vote in June 2016, consulting firms have consistently invested in expanding their personnel to meet rising demand in the real estate sector. Firms including Capita, EY and most recently Deloitte have each made key appointments in the sector over the past 17 months. A slowdown in foreign investment in the industry could have significant impacts on the practices of such firms in the long-run, should the survey prove accurate, with investors redirecting their ambitions to Germany – which presently looks the most likely European city to benefit from a potential exodus of financial service jobs from the UK capital of London, making property in Germany increasingly attractive in anticipation of this. Frankfurt seems at this point to be the likely alternative for a new European financial capital, should London suffer from a hard Brexit.

It is notable that the firm behind the research last month secured around £7 million in fundraising for their proptech operation, and were large beneficiaries of German investment in their own right. Berlin Hyp, the real estate finance provider to Germany’s largest banking group, the Savings Banks Finance Group, were the lead investors during the London-based start-up’s second round campaign.

Emmanuel Lumineau, CEO at BrickVest, commented, “Our latest Barometer reveals that Germany has overtaken the UK as the location of choice to invest in commercial real estate. Investor risk appetite continues to rise as commercial real estate offers opportunities, especially in the form of debt like investments which offer good risk adjusted returns in a volatile market environment.”

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UK manufacturing sees orders slow amid Brexit anxiety

11 April 2019 Consultancy.uk

Manufacturing in the UK saw negative growth for the end of 2018, reflecting a wider slowdown in the UK economy to 0.2% for the quarter, followed by three months at the start of 2019 which saw continued softening in orders. With uncertainty still hitting the sector ahead of Brexit’s deferred deadline, the industry faces a difficult 2019.

Despite a perpetually changing economic landscape, manufacturing remains a keystone industry in the UK. Optimism in the industry has been riding high in recent years, reflecting the perceived potential of automotive technologies, but last year saw a slight dip in business performance, ahead of what seems set to be a turbulent period for British manufacturing. Ordinarily, the sector might have expected to recover its footing relatively quickly, but with the looming spectre of Brexit making the economy’s future completely uncertain, this has not been the case.

The uncertainties of Brexit have continued to create headaches for companies on both sides of the channel. As contingency planning continues, new analysis from BDO and the Make UK explores how manufacturing – a segment likely to be hard hit by Brexit – has fared in the final quarter of 2018.

Output balance stable

Manufacturing remains a key industry in the UK, generating around 10% of total economic output and supporting around 2.7 million jobs. Yet while the industry has seen a number of years of strong optimism as well as demand, Brexit is set to throw a spanner in the works, with a range of manufacturing companies leaving the UK, or considering it. Indeed, UK manufacturing’s output currently sits at a 15-month low as the industry anticipates a cliff edge Brexit.

In terms of growth for various parts of the UK economy, a slowdown was noted in the final quarter of 2018 compared to Q4 2017. Manufacturing, in particular, saw growth declines coming in at almost -1%, with a similar trend in production. Construction saw a sharp contraction, falling 2 percentage points to below 0% growth in December 2018. Only services managed to have positive % growth in the final quarter. The final quarter as a whole saw growth of 0.2% in the UK economy – the lowest level in six years.

Output across most sectors in the industry remains positive, with the percentage balance of change in output at 22%. The result is the tension quarter of positive percentage balance of change, with stagnation on the final quarter of 2018. The firm is projecting a slight softening of output going into Q2 2019. The firm notes that there is some stockpiling taking place, with orders and outputs unaligned going into 2019.

Order balance remains positive but dips further

While there is a broadly positive picture for output, the firm does note considerable differences between subsectors. Basic metals for instance, saw a net 24% fall to -18% over the past three months. Metal production is also seeing relatively poor performance as demand from the automotive industry enters a period of acute uncertainty. However, most industries are to see improved output on balance, with rubber & plastic increasing from a net 11% to net 56%.

Export trade

Having been buoyed by the lowered value of the pound, UK export orders are up slightly on the previous quarter, but remain well below the most recent peak in Q3 2018. Domestic orders were relatively strong, with a year between the most recent peaks for the segment. However, Q2 2019 looks to see domestic orders fall sharply, to half Q1’s result, while export orders too are set to see declines.

The decline reflects a decrease in basic metals, possibly a reflection of changes affecting the auto industry. Meanwhile, export orders are down due to Brexit cross-border uncertainty – the effect of the sterling devaluation unable to continue to buoy the market. Basic metals and metal products are both in negative territory for the coming three months.

Investment and employment intentions

UK employment figures reached new milestones, with total unemployment down to 3.9% while participation rates hit record highs. Employment planning continues to be in net positive territory, with a net positive balance of 22% in Q1 2019. The coming months are projected to see a slight dip, again, largely resultant from uncertainties around Brexit. Basic metals is the sector most likely to see a negative trend, reflecting the expected decline in orders.

Investment intentions meanwhile continue to be in positive territory. However, again, the now acute uncertainty about Brexit – the UK government has boxed itself into a corner – mean that confidence around investment could wane rapidly.

Commenting on the wider economy, Peter Hemington, a Partner at BDO, said, “Manufacturing firms have been ramping up their preparations for a disorderly Brexit, in large part through the stockpiling of imported goods. This has had the effect of inflating activity levels… It’s too late to do anything about this now.  But a disorderly Brexit would be far worse than the current relatively mild slowdown, possibly disastrously so… We are concerned it looks more likely than ever that we will exit the EU without a deal.”