Britain’s city centre populations seem to be convinced that Brexit is a bad thing. In all but two (Birmingham and Southampton) of the city centre authorities in which CBRE has an office voters were in favour of remaining in the EU in the 2016 referendum.
However, although, right now, Brexit dominates many debates about the future of the British economy, it’s not obvious that in 20 years’ time it will prove anything like as important – in general, or for cities in particular.
Many studies of the perceived impact of Brexit do take a long term view. The balance of opinion of recent studies appears to be that Brexit is mildly negative for economic growth.
Figure 1: Long-run impact of UK leaving the EU – economic studies compared
Source: The Economist; HM Treasury; papers citied
Studies tend to find long-term adverse effects upon growth from a reduction in:
- trade flows, which reduces economic specialisation, and slows or diverts supply chains
- migration flows, which reduces employment growth (and potentially innovation, if interchange of ideas and expertise is also lowered)
These effects, especially the trade effects, are clearly dependent on how loose or tight the UK’s new relationship with the EU actually turns out to be once Brexit negotiations are complete. They could also be offset by new trading relationships with other parts of the world than the EU, especially if those relationships focus on trade in services where the UK has a comparative advantage.
However, in 20 years it seems quite likely that Brexit will be only one of a number of factors affecting the fortunes of British cities – and their real estate. There is typically a significant downturn in the value of commercial and residential property at least once every twenty years (for example, in both 1990 and 2008), so we can probably expect another one before we get to 2040.
As with previous recessions, the effect on cities varies depending on their economic structure. For example, 2008 was particularly damaging in the financial services sector, and the occupation of London office space has diversified very significantly in the aftermath. The credit crunch also had significant effects on consumer spending, debt, business confidence and growth – which in turn have had noticeable effects on the British high street despite a resurgence in growth from 2013-2015. Public spending has also been squeezed. So it could be argued that Brexit is still having less effect on British cities than the credit crunch. If a similar economic cataclysm occurs between now and 2040, CBRE speculates that it will be very difficult to identify any specific Brexit effects afterwards.
Furthermore, as we argue elsewhere, the focus of cities on the key drivers of culture, innovation and governance will be more important in securing their future.
The UK may even have re-joined the EU by 2040 (but we doubt it).