Occupiers more concerned about Brexit, but taking space anyway

16 Jul 2019

By Miles Gibson

Each year CBRE conducts an extensive survey of our major occupier clients in Europe (main findings here). For the last three years we have included a question about the impact of Brexit (in all its guises) on clients’ operations. This blog reveals the results for the first time.

In 2018, occupiers were getting more comfortable with Brexit risk, with the percentage of occupiers saying that Brexit would have a ‘very significant’ or ‘significant’ effect on their operations falling from 48% in 2017 to 35% in 2018. However, by the time we conducted our 2019 survey earlier this year, that number had risen back up to 43%.

The proportion of occupiers who stated that Brexit would have an insignificant impact on their operations also fell sharply in early 2019, from 27% to 14%, whereas this number had been broadly stable in previous years. This perhaps suggests that Brexit effects have become more pervasive and diffuse over the last year, and are affecting a wider range of occupiers, albeit not acutely.

On the face of it, there is obvious explanation for this rise in Brexit’s perceived impact. The original exit date of 29 March was fast approaching when we did the survey, and Brexit was not going smoothly, with the deadlock in the UK parliament adding uncertainty and palpable frustration into business decision-making. That uncertainty continues as we wait for our new Prime Minister to be decided. And occupiers may also feel that they know more about Brexit’s eventual impact than they did a year ago.

Even so, perhaps the gloom has been overdone. Despite the uncertainty, the UK economy grew by 1.4% in 2018, and CBRE expects a similar performance this year. It’s not spectacular, but it is still growth, supported by stronger-than-expected employment growth. Ironically given the Brexit debate, employment growth has been driven partly by non-EU migration rising to new highs.

And cities are doing well. In London, office-based employment grew by 2.1% in the last year, compared with 1.6% for the UK. That jobs growth has translated into record demand for office space in some UK cities. For example, CBRE’s numbers for 2018 show that office take up in London was the best for 3 years at 13.6m sq ft. Belfast and Manchester experienced the highest take-up on record, and in Glasgow and the wider South East of England, the best since 2007.

So, although occupiers are telling us that they remain concerned about the impact of Brexit on their operations, the impact of Brexit on their real estate decisions is a little more difficult to discern. One possible explanation is that occupiers are so fed up waiting that they have simply decided to take the risk and hire, lease and invest while they wait for the political process to conclude.

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