Stephanie McMahon

Head of Research

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Stephanie

While many politicians seem undecided over the proposed Brexit, Strutt & Parker clients are a little more certain - 86% don’t believe we’ll leave.

But whether we stay or leave, there will be consequences come June 23rd…

The build up to the vote…

Regardless of the result, there will be a period of uncertainty as the world awaits the outcome. This could lead to some foreign and domestic businesses holding off large scale investment or agreeing important deals until the situation is clear.

Likewise, sterling could become more volatile, as seen in its recent devaluation, and the stock market could become erratic as investors make decisions based on various polling information. Foreign investment into the real estate sector is also likely to soften in the run up to the referendum.

Options for leaving…

It’s not just a matter of out or in. There are varying degrees of out…

Norwegian-style EEA agreement: The UK joins the European Economic Area giving access to the single market. The UK must abide by all EU rules and regulations without opinion or influence. Contribution to the EU budget, which now stands at £8.5bn, would still be applied and the UK will be unable to impose its own immigration rules.

Swiss-style bilateral accords: The EU would give the UK access to the single market in a certain number of sectors. There would be concerns from EU members about the UK receiving special treatment, which may result in the number of sectors agreed being limited.

FTA-based approach: The UK works out a free trade agreement (FTA) with the EU and other countries like USA, Japan and China. There are unlikely to be tariff barriers imposed but the UK would need to trade-off independence with EU rules and regulations.

The implications for… Agriculture

Short Term (run up to referendum): The uncertainty and the future of farm subsidies would have an adverse effect on the farmland lettings and sales markets. Farming production and income is unlikely to be affected as it is more dependent on world commodity markets.

Long Term (5 years post Brexit): Little or no land would leave production. Prices would depend on access to the EU Single Market and trade agreements elsewhere. Export costs could rise and input costs fall due to decreased direct payments. A new agriculture policy would force the sector to restructure, with the unproductive leaving and the most entrepreneurial growing.

The implications for… Industrial property

Short Term: Manufacturing growth has been soft recently, and uncertainty around trade agreements would impact new plant investment. The distribution sector, however, has been active, and Ted Baker’s recent deal to lease a major European distribution hub in the East Midlands suggests some businesses are carrying on as normal.

Long Term: Any settlement would be key to the industrial and logistics sector. Restricted access to the single market would impact manufacturing and distribution, though demand from e-commerce logistics space is unlikely to be too heavily impaired.

The implications for… Offices

Short Term: The UK is the springboard to the EU for many global companies. Government figures show that in 2012 the UK benefitted from 43% of inward investing HQs into key European centres. Those looking to invest in the UK would hold off decisions. Similarly existing occupiers would be dis-incentivised in making major capital expenditure decisions and those close to lease renewal would likely seek short term extensions.

Long Term: Sectors where trading outside of the EU becomes disadvantageous, like retail banking, would suffer. Core investment banking and associated services are less likely to be affected. International occupiers, such as law and professional services would follow their clients. New sectors that thrive in a lower local regulatory environment would emerge.

The implications for… Residential property

Short term: Residential markets are highly influenced by uncertainty and London would feel the effect of nervous buyers. This could lead to a drop in trading. Across the UK the short term impact would be less.

Long term: Domestic household wealth and confidence may be impacted, thus negatively impacting the markets. If exit results in less immigration, some pressure may be taken off the housing market, reducing inflation. For London, sterling devaluations could be positive as property becomes cheaper for foreign buyers.

The implications for…Retail spaces

Short term: Confidence in the economic outlook is fundamental to UK consumers’ spending decisions, so the period in the run up may soften retail sales. Retailer expansion in the UK continues in strong locations at present, suggesting retailers are either relaxed over the prospect of Brexit or doubt it will come to pass.

Long term: Strong population growth has been a key driver of UK retail, with real wage growth limited post-2008. A settlement that slowed immigration would act as a drag on retail sales.