The Downing Street
It’s not Brexit causing the sclerosis in the commercial property market today, but the continued uncertainty about when and whether we will leave at all.
OUR INSIGHT #9
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New PM may be a positive for property
It’s “do or die”, our new prime minister said on the campaign trail.

The first order of business Boris Johnson has on entering No.10 is to ensure the UK can and does leave the EU on October 31. At this point, that could be just what’s needed to breathe increased liquidity into London’s commercial property market.

Of course, the warnings of the impact of a Johnson premiership were well rehearsed in the Tory leadership campaign. Plans for a substantial renegotiation of Theresa May’s Brexit deal or reliance on “GATT 24” provisions to smooth our exit from the EU were widely criticised – not least by Johnson’s own party. Warnings of the impact of leaving without a deal, meanwhile, have never been far away.

It’s important to remember, though, that the threats of disruption in the run up to the EU referendum in June 2016 and in its immediate aftermath largely failed to come true for commercial property. The London market saw a short slowdown in the months following the vote, but by Christmas it was, again, roaring. In 2017 we saw record numbers, and 2018 followed a similar pattern.

In fact, it is only more recently – three years after the vote – that we’ve finally seen activity really stall. That coincided with Theresa May’s doomed attempts to get her deal through parliament and subsequent extensions to the deadline for the UK to leave. It’s not Brexit causing the sclerosis in the commercial property market today, then, but the continued uncertainty about when and whether we will leave at all.

The prime minister’s determination to leave by Halloween provides a route out of that uncertainty – if he can stick to it.
London
Even a moderate Corbyn-led government would be more damaging to London property
Pulling off the plaster

Given the EU’s stated unwillingness to substantially renegotiate, that may well mean the UK leaves without a deal. There could, no doubt, be a short-term economic knock from that, with pricing moving out.

But against this we would likely see reflationary policies, such as the tax cuts and infrastructure spending promised in the campaign, turbo-charged to support the economy. Any fall in prices, meanwhile, would coax investors in Germany and Singapore, who currently see London as too expensive, off the sidelines.

All the time, we can also expect frantic activity between the UK government and EU to establish agreements that will enable trade and investment to continue to flow. There may be some short-term pain, then, but overall the outlook for commercial property looks surprisingly positive.

All this, though, assumes that Boris can convince his fellow Tories to rally round to achieve his aims. As we’ve already seen, that is by no means certain.

If Tory MPs opposed to “no deal” fail to back the leader their election process has chosen and thwart the plans to leave at the end of October, the story changes. We then face two distinct possibilities.

The first is further extensions, fudges and uncertainty as the debate drags on. That will almost certainly mean the market remains paralysed: If we do the same thing, we shouldn’t expect a different result.

The second is a general election – either forced on the government by a vote of no confidence, or chosen as its only option to break the deadlock. That would bring the prospect of Jeremy Corbyn taking the keys to Downing Street.

And that’s a far more worrying prospect for commercial property.

Time to get on with it

It doesn’t take much imagination to see that a government pursuing renationalisation, big increases in tax and spending, and attacks on the city would do little for the market. We’d be likely to see some high earners and businesses relocating, and institutional investors more nervous about London’s future.

The key point, though, is that even a moderate Corbyn-led government would be more damaging to London property than Johnson’s “drop dead” Brexit. There would, of course, be the initial election period, and then time for the new government to settle. Then there would be a further wait as the new government try to negotiate its own deal on Brexit.

Finally, if he had not already, the need to maintain loyalty or appease coalition partners means Corbyn would almost certainly commit to a second referendum. That means months more uncertainty in the run up to the vote – and afterwards as we seek to clarify arrangements with the EU if the vote is to remain. And what if the public vote again to leave?

It could almost go on forever.

Whatever the rights and wrongs of Brexit, the market needs certainty – and to get it any time soon, Johnson’s plan is the only game in town. It might not be where some of us would have chosen to end up, but it is where we are. When it comes to Brexit, it’s time we took Macbeth’s advice: “If it were done when ’tis done, then ’twere well it were done quickly.”