Although the UK left the EU on 31 January 2020, the transition period meant that the UK continued in most respects to be treated as if it were still part of the EU until 31 December 2020.Now that this transition period has ended, the full effect of the UK’s departure from the UK can now be felt.But what does this mean for the UK Real Estate sector?
In England and Wales, the legal framework that underpins property transactions is largely domestic rather than derived from European law, therefore it is somewhat insulated from the legislative changes of Brexit.The effect of the UK’s departure from the EU is therefore likely to be commercial rather than legal.
Market confidence
Commercially, the UK property market does not respond well to uncertainty. Now that agreement has been reached regarding future trade and co-operation between the UK and the EU, the dip in market confidence resulting from the uncertainty of the referendum and subsequent political negotiations should be remedied and confidence restored. Unfortunately, this has now largely been replaced with uncertainty regarding the global Covid-19 pandemic.
Real Estate Investment
It was initially feared that Brexit would result in a big shift in occupational trends, with the mass exodus of organisations out of the UK, particularly in the financial sector. Save for a small number of exits, this did not materialise and occupational trends do not appear to have been significantly impacted by Brexit. Whilst Brexit may be a consideration for organisations when making decisions regarding real estate portfolios, it is unlikely to be the main factor.
In terms of pricing, there has been an ongoing adjustment since the 2016 referendum and commentary from experts suggests that Brexit has now been priced into the market, with no further impact on pricing expected.
Real Estate Funding
The availability of funding, in particular debt financing, is crucial to the proper functioning of the real estate market.A reduction in activity across the real estate market as a whole, coupled with a reluctance to refinance away from existing funding partners due to the desire for stability, has resulted in lenders focusing on existing customers, with new lending falling considerably. This is likely to change as the market as a whole picks up and stabilizes post-Brexit and post- Covid-19.
Real Estate Development
Access to materials and supply-chain considerations will be a major factor affecting the impact of Brexit on the construction industry. New tariff arrangements and border checks could impact both the availability and timing of supply and as a result the cost of materials may very well become more expensive as a result. The disruption caused to global supply chains by Covid-19 will also exacerbate these issues.
The same is true for access to labour. A significant number of UK construction workers hail from EU countries and it remains to be seen whether the post-Brexit construction industry will continue to have easy access to a large pool of skilled migrant labour from EU countries or whether this will be hampered by time consuming visa processes.
Conclusion
The legal impact of Brexit on commercial property in England and Wales is likely to be limited and the commercial impact has now largely been eclipsed by the impact of the global Covid-19 pandemic. The focus now will likely be on how the UK market adjusts to the challenges presented by Covid-19 rather than the changes resulting from Brexit.