As a leading firm in the built environment industry, we have seen the industry evolve through previous economic and political shockwaves, most notably the effect of the global financial crisis in 2008. We believe that it is important for the industry to allow the hysteria generated by the vote to subside and then take a considered view as to its short- and long-term future in relation to its key sub-sectors. Below we have outlined our view on the current status:

Investment and development

Short term

Whilst there may be a flurry of activity for investors looking to take advantage of the pound's depreciation against the dollar, yen and other safe-haven currencies, the overwhelming sentiment will be caution and delay in decision-making. The key difference between now and 2008 is that the proportion of distressed sellers is modest and the investment market is dominated by equity-rich ownership who would not be compelled to re-price assets and bring them forward for sale. With political uncertainty at its zenith at present, we foresee a general slowdown of activity with the predicted rebound in the market following a positive "Remain" decision not materialising. We consider that even though some businesses will look to move parts of their operations to Europe, London will remain a significant global location for investment but the second tier market may suffer.

Long term

The Brexit decision has laid bare the disconnect between London and the regions, so it is imperative that political stability is returned as quickly as possible and clarity is given on key infrastructure projects such as Crossrail 2, HS2 and the expansion of Heathrow. Without this, there is a risk of London stagnating due to the uncertain long-term prognosis for occupier-demand from financial services and the tech media sector, with such sentiment being dependent upon the perception of London as a first-choice centre of academic excellence and an open and transparent society. If London activity slows, the knock-on effect of this is to risk starving appetite for investment outside London, as sentiment to invest in those locations and benefit from the greater returns offered was underpinned by political commitment to these large infrastructure projects.

Brexit may accelerate the re-pricing of assets, which some commentators were saying was inevitable, but the return to longer-term confidence needs to be underpinned by political stability and commitment to deliver these projects.

Residential

Short term

We consider that some re-pricing of residential property is inevitable (particularly at the top end of the London market, which many investors considered to have reached its peak even before the leave vote), fuelled in part by the panic created by sharp falls in the share price of UK major home builders, and whilst currency depreciation may provide a stimulus for a short-term spike in activity, to ensure activity has the chance to return to pre-Brexit levels, developer and investor confidence will depend upon the following factors:

  • Political stability
  • Freedom of movement - the UK needs to maintain its reputation as an attractive place to live and work, and an entry point to Europe for both students and workers outside the EU
  • Commitment to infrastructure - long-term commitment to large-scale residential projects demands the stimulus of political commitment to these projects
  • Preservation of the UK's status as an open and transparent society and a first point of call for innovation and a place to do business
  • Language - the power of English as a dominant second language for business and education is, and always will be, an important draw but political and economic isolation feared by the vote must be countered by a quick and decisive political response.

Long term

We consider that there will be some permanent damage to the residential market, irrespective of whether the renegotiation between the EU and UK preserves the single market and freedom of movement for workers across the EU Block and Britain. The UK had a privileged "safe haven" first port of call for foreign investment, reaffirmed by a recent JLL study which considered it the most transparent place to invest. That demand, and confidence in London and the regions as a global city and default entry point for Europe, fuelled the confidence to invest and develop residential property. The speed with which that trust and confidence is rebuilt will be the bellwether for the residential market's resilience and long-term future.

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