Making Brexit work 4th November 2016

London ‘must not sit back and wait’ for Brexit to “play out” but respond quickly to the uncertainty the vote result has created, particularly in the banking sector, if it is to retain its position as “the greatest city on earth”. This and a host of other views emerged this morning at a CBRE debate focused on “Making Brexit work for London Real Estate”.

The seminar at The Mayfair Hotel in London’s West End included CBRE’s latest research on how the EU referendum vote was affecting London property as well as a distinguished panel debating the likely permutations including host Sir Edward Lister, chair of the Homes & Communities Agency and a consultant to CBRE, Blake Hutcheson, president and chief executive officer at Oxford Properties, Helen Gordon, chief executive officer at Grainger, Trevor Williams, Professor of Economics and Finance at Derby University, and a member of the Institute of Economic Affairs shadow Monetary Policy Committee and Marc Boleat chairman of the Policy and Resources Committee at the City of London Corporation.

Focusing on CBRE’s latest research and predictions Kevin McCauley, head of central London research, said a softening in office leasing activity in and around the referendum vote had been overtaken by recovery in the third quarter thanks to significant deals involving the likes of Apple, Amazon and Wells Fargo.

“Supply is moving upwards,” McCauley added, “but is 6% below the 10-year average.”

That said CBRE is predicting 2017/18 will be “below trend years” and that there will be a curtailment of development starts. McCauley also predicted 10% rental falls in the West End peak to trough and 6% in the City.

Miles Gibson, head of UK research, said it was crucial to keep in mind that London is a “global powerhouse” for a variety of diverse reasons.

“We do think there is some weakness ahead because of Brexit however, and London must not sit back and wait for it to play out.”

Focusing on the upcoming Autumn Statement, Gibson expects the new chancellor to provide strong “mood music” to settle business with major announcements on infrastructure and reform.

“We also expect mayor Sadiq Khan, given the strength of his mandate, to have a list of demands for London and to be very pushy on the 38 opportunity areas.”

Turning to the panel and the key issues created by the vote and the emerging reality of what Brexit will mean Professor Trevor Williams said the major challenge for the UK will be “finding a new role” in the world.

Hutcheson at Oxford was positive about London real estate’s continued appeal to foreign investors.

“We have 25% of our book in the UK, principally London, and firstly it needs to be remembered this is the greatest City in the world. There are also 200 or so other countries in the world with their own problems. In this respect investors are still going to show up in this town. In addition I do not see cap rates changing. Our focus is going to be on supply and demand as this is what is crucial for us.”

Hutcheson said Oxford had completed an acquisition after the referendum vote where he estimated it had secured a 5% discount on what the price would have been if the vote had gone in favour of remain. “In addition because of the currency delta created by the falling value of sterling it was another 20% less again for us. On the other hand we are also selling some assets and seeing strong interest with some of that coming from the US. We have put £500m against this market and we are prepared to dance against the raindrops.”

Hutcheson warned that Brexit negotiations would be tougher than many imagined. “This is a divorce and many seem to want a divorce but still with conjugal visits and this of course does not work. I think it will be nastier than people think. But Brexit did not mean Brexit ultimately. It was the result of people voting for a whole series of factors that were not necessarily to do with the EU. I hope some sober people will patch something up and we do not have a nasty divorce.”

Boleat said that financial markets “cannot wait until it is all settled”.

He said banks are planning for a worst case scenario in which some of the business of some of the banks will go.”

Asked by Hutcheson whether this would translate into what he had heard from Canadian banks recently, that they were planning to move around 20% of the workforce elsewhere Boleat said “That’s a fair assessment I think. But of course that would be aborted if passporting issues were resolved.”

Grainger’s Gordon said it is important “we invest to maintain London’s competitive position in infrastructure and housing”. On a positive note she said it was useful that this was “happening when we are on the cusp of there being £50bn poised to go into the Private Rented Sector”.

“To maintain competitiveness the quality of the rental market is vital in this period of uncertainty,” Gordon added.

Each panellist was also asked what “sweetener” they you like to see in the upcoming Autumn statement?

Boleat said “real devolution to London” including all housing controls devolved to London” while Gordon called for a removal of the additional 3% tax on homes for rent.

Hutcheson asked for a reduction in property taxes to “encourage foreign investors to put a bet on London”.

Williams asked for green belt restrictions to be “swept away”.

Turning to their “Brexit wishes” Gordon asked for passporting to be allowed for the UK financial services sector and “enable foreign labour to continue to work in the construction industry”.

Hutcheson agreed that “passporting would be ideal”.

Williams said: “Can we change our minds?”