Fears about Britain’s potential departure from the EU are putting off international firms from investing in UK offices and shops, and some are considering relocating in the event of a leave vote – with Paris, Frankfurt and Dublin likely to benefit.
A report from the Royal Institution of Chartered Surveyors (RICS) shows that there has been a steady easing in international demand for UK office, industrial and retail property since the referendum was confirmed last spring.
Nearly 40% of RICS members across the UK said that in the first quarter of 2016 international retailers and others were reducing investment in the UK ahead of the June referendum. In London, 80% said that uncertainty around the outcome was holding back investment.
Demand from international investors for UK offices and shops has fallen sharply, with just 5% of RICS firms reporting increased interest from overseas companies over the last three months, compared with 36% a year ago.
The organisation said some international firms were drawing up contingency plans to shift their headquarters in the event of Brexit. Overseas firms based in the UK occupy large swathes of real estate, and their departure could harm office occupancy rates, and the local economy.
Likely beneficiaries of a Brexit are Paris, Frankfurt and Dublin, although the report said London was likely to remain a magnet for investment. Investment rates have eased, but not frozen.
Housing and planning minister Brandon Lewis said: “We have a strong and growing economy but as this report shows major international businesses are postponing investment because of fears of Britain leaving the EU. On 23 June there will be a clear choice between economic security and global influence in remaining in the EU, or a leap in the dark and further uncertainty.”
The RICS report also said that house prices were likely to fall, should the UK opt for Brexit, as a significant number of higher end properties, especially in London and the south east, are bought by Europeans and people from outside the EU.
It said: “Brexit could see less demand for higher end properties as highly paid executives could follow their headquarters to mainland Europe ... We can, therefore, suggest house prices could decrease in the immediate to short term.”
HSBC chief executive Stuart Gulliver said in February that the lender would probably move about 1,000 investment bankers to Paris if Britain pulls out of the EU, a day after the bank decided to keep its headquarters in London.
Britain’s housing crisis could worsen if the flow of construction workers from the EU dries up – 10-12% come from outside the UK, and on average eight different languages are spoken on site, said Simon Light of design and consultancy firm Arcadis. Housebuilders have long struggled with shortages of skilled workmen, which has driven up construction costs.
Some 43% of RICS member firms said Britain’s withdrawal from the EU would have a negative impact on commercial property and only 6% saw a positive impact, with the rest seeing a limited impact (38%) or replying ‘do not know’ (12%). In central London, not a single respondent felt Brexit would be positive, and 60% viewed leaving the EU as a negative.
RICS chief economist Simon Rubinsohn said: “There is no doubt that since the EU referendum became a certainty following the general election last May we have seen a decline in interest from overseas investors in UK commercial property. At least in the short term, we know that international retailer and service providers are finding the UK market less attractive.”
The report also suggested that British farmers, many of which rely on payments from the EU’s Common Agricultural Policy to pay their rents, would take a big hit in the event of a leave vote. CAP payments amount to €3.1bn a year and 60% of UK food exports go to the EU, while 70% of food imports come from the trading bloc.
Separately, analysts at the Standard & Poor’s credit rating agency said a leave vote could lead to a price crash, reversing the gains in property values seen in recent years, with London most affected and the commercial market more heavily impacted than the housing market, in particular from financial firms scaling back office investments.
They warned about the risks for housebuilders such as Taylor Wimpey, which has 30% of its building projects in London or surrounding areas, and Grainger that relies the London region for more than a fifth of its revenues.