01 Nov 2018

The post-Brexit world will belong to the disruptors

A recent panel discussion held by Octopus Property and a number of key industry figures spelled out the uncertainty facing the UK property market. Mario Berti, CEO of Octopus Property considers some of the key points raised.

With five months to go until Britain leaves the European Union jitters are spreading across the property market. Just a few weeks ago, the Bank of England Governor Mark Carney warned that house prices could crash by 35% should Britain leave the EU without securing a Brexit deal next March.

One leading residential developer told me that in the weekend after that announcement, property sales were the worst he’d seen in a decade. “Why would anyone buy property now, when they think their new home could collapse in value next spring?” he told me. “Why not wait until April or May to buy a bargain after we crash out of the EU?” It was hard to fault the logic.

Commercial concerns are growing

In the commercial property arena, consumer confidence is hitting the performance of retailers and dragging down shop property values as a result; Central London office leasing decisions are being delayed and even the shining stars of the logistics world are fretting about restrictions on trade.

Having committed more than £3 billion to the sector over almost a decade, the team at Octopus Property wanted to give our customers the opportunity to explore the implications of Brexit.

So, we invited a number of participants to join us in thrashing out a ‘London vs. the Regions in the Brexit era’ debate.

Intro by Mario Berti

Mario Berti addresses the audience at the London vs Regions panel discussion.

The panel included experts such as Mat Oakley, the Head of Commercial Research at Savills, and developers Nick Sellman of Birmingham-based Urban Village, Duncan Crook of Newbury-based Ressance and finance broker Rob Jupp from Brightstar, amongst many others, giving their views.

Mat Oakley, Savills

Mat Oakley from Savills

Several key themes emerged. First, there was a weary resignation that Brexit will happen, that a ‘People’s Vote’ is unlikely and that the development and investment world now needs to roll up its sleeves and make the best of whatever deal the government manages to negotiate.

David Hatcher, Estates Gazette

Most of the panel agreed that it was time to start looking ahead to life after Brexit.

Labour concerns

Next, the panel shared widespread concerns that property developers will be hampered by restrictions on labour after Britain leaves the EU. One attendee recalled that the day after the 2016 Referendum, many of his Eastern European workers did not turn up for work on one of his sites. They thought that they had already become excluded from working in the UK.

And third, there was a view that transactional activity will slow in the next five months as much of the property market adopts a ‘wait-and-see’ approach.

Bigger than Brexit?

But what also emerged was a view that Brexit is arguably a sideshow to some bigger issues affecting the property market right now.

The biggest takeaway of all was that property is now increasingly seen as ‘late cycle’, although there was still support for investment in urban logistics development, regional office refurbishment and retail property once values begin to fall steeply.

Our view at Octopus Property is that there continues to be a huge opportunity in the UK real estate sector, and that while the next six months will see borrowers becoming more discerning, the second half of 2019 could see a Brexit relief bounce.

Britain still open for business

Whatever the details of the Brexit deal, Britain will remain a great place to do business and will continue to be attractive to foreign investors. Chancellor Philip Hammond calls this a ‘Deal Dividend’, and there is some credence to the view that if Britain secures a ‘Soft Brexit’ the property sector’s appetite for finance for development and investment will increase sharply once again.

What is also clear is that in the post-Brexit era, those capable of satisfying an increased appetite for property finance will not be the traditional lending institutions.

New world order

Beset by problems with their legacy branch networks, stifled by bureaucracy imposed in the wake of the Global Financial Crisis, suffering from tarnished brands and struggling to attract new talent, these behemoths struggle more and more to satisfy customers who value certainty of funding and service above all else.

Everyone who joined us for the debate is preparing for a big revolution in the property lending world in the Post-Brexit era. The next decade will belong to the disruptors.

This article first appeared in Estates Gazette