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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