Brexit: where has real estate ended up?

After five years (and counting) of arguing about Brexit, we do now at least have the benefit of knowing what was finally agreed. So, with the dust now settling on the deal, we’ve published a new report which attempts to forecast the effect of the actual deal on real estate, taking account of the actual circumstances we find ourselves in. We give a view on both the immediate short-term impacts (the next 2 years) and the longer-term impacts (5-10 years hence).

Brexit’s effect on the economy is the single most important factor. There are proven strong correlations between property market performance and economic growth. So, if Brexit is bad for economic growth then it is bad for the property market. All other things being equal, CBRE has taken the view to date that Brexit is bad for economic growth. And we have also shown pretty convincingly that Brexit has been damaging to the property market in the short term.

But all other things are of course not equal, and the actual effect of Brexit depends very much on how the UK government, and UK firms, respond. If they respond quickly and effectively then the UK could be better off outside the EU. That very much remains to be seen.

Furthermore, the arguments either way about the effect of a specific aspect of the deal can be complex and in many cases it’s not yet possible to say with any certainty whether Brexit will turn out to be a good thing or a bad thing, especially in the longer term. And whatever the effect of Brexit, it is important to get it into perspective: for the next year or two, we think the economic impact of the COVID-19 pandemic is far more important an influence on real estate than Brexit.

Notwithstanding those caveats, we forecast that:

• For logistics property, the short-term disruption has actually been rather positive, as it has increased demand; in the longer term there are concerns about labour shortages in the logistics sector which could also increase the demand for warehousing.

• For retail and hospitality property, the additional frictions arising from border checks will increase retailer costs (if these can’t be passed on to customers), which could depress rents.

• For residential property, the loss of freedom of movement could affect demand slightly – and there may also be supply impacts, with industry bodies already warning of labour and materials shortages in the construction industry. We don’t see any significant effects on student accommodation.

• For office property, the loss of access to the single market in services, especially financial services, is likely to be the biggest driver.

Of course, Brexit is not actually fully settled yet. A range of grace periods, transitional timelines and unfinished business mean that some sectors of the economy, notably financial services, are still (at least partly) in the dark about what Brexit means for them. We set out the future timetable in our report – and yes, it does look likely that some aspects of Brexit will still be being argued over in another five years…

You can read our new report here.