Brexit Fears Prompt International Businesses to Halt Investment in UK

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Brexit Fears Prompt International Businesses to Halt Investment in UK

International businesses are postponing investment in Britain in the wake of EU uncertainty, a new paper by the Royal Institution of Chartered Surveyors (RICS) has revealed.

The RICS EU Referendum Paper which examines the pros and cons of the UK remaining and exiting Europe includes new survey data showing that there has been a steady easing in international demand for UK office, industrial and retail property since the referendum was confirmed in Q2 2015. 

The demand indicator among international investors for UK commercial property is now at its lowest level since RICS records began in 2014 with just five per cent of members surveyed reporting increased interest from overseas companies over the last three months. This is a considerable drop from Q2 2015, when the figure was at 36 per cent.

Uncertainty caused by the EU referendum has been cited by 38 per cent of RICS members working within the sector as the reason why major international retailers and other businesses have been nervous of investing in Britain.

Should Britain leave the EU, 43 per cent of respondents felt that it would have a negative impact on the commercial property sector and only six per cent said a Brexit scenario would have a positive impact on the commercial property sector.

Short term uncertainty

The EU Referendum Paper shows that a range of key industries from residential housing to construction and rural have been hit by short term uncertainty. However, across the board, in the longer term steady growth is still predicted across rural, land and built environment sectors.

RICS Chief Economist, Simon Rubinsohn said:

“There is no doubt that since the EU referendum became a certainty following the General Election last May, we have seen a decline in interest from overseas investors in UK commercial property. At least in the short-term, we know that international retailers and service providers are finding the UK market less attractive.

“But we need not view this as a negative, as a result of the market dampening, business rents are also rising at much slower rates, which suggests that we might soon be seeing more favourable conditions for entry and business growth.

“Moreover, it is interesting to see that despite the climate of uncertainty across all sectors surrounding the impact of Brexit, the long-term view is that we will continue to see the value of land and property assets increase, albeit at a marginally slower rate.”

Brexit benefits for Forestry
While the National Farmers Union (NFU) has this month come out in favour of remaining in the EU, largely due to concerns around the loss of Common Agricultural Payments (CAP), the RICS EU Paper has highlighted that a Brexit may benefit the forestry sector.

RICS Rural Chair, Gerard Smith said:

“In the event of Brexit, farmers will most likely lose access to the EU single market and CAP.  The question that Government has yet to answer is how much of the current support system they would replace in such an event.

“In terms of CAP transition, the EU Commissioner for Agriculture has suggested that the EU may well have a contract to support UK farmers until 2020. However, this would still mean that we would have to restructure UK land and farming businesses in the short to medium term.

“While the strong gains seen in land prices over the last decade have come to an end, and some are now forecasting falls ahead, 70 per cent of our rural members feel that land would still remain a strong investment opportunity overall.

Timber anomaly
“While there is no doubt that the majority of those working in rural sectors will be concerned around the possible withdrawal of CAP, quite uniquely, there is an anomaly in that forestry has benefitted from the uncertainty around the EU and the consequential weakening of the pound.

“The second half of 2015 saw a strong GBP performance against the Euro, and this impacted on the competitiveness of UK domestic supplies due to the better prices of imported timber. Continued uncertainty from a Brexit could weaken the pound, so we could see resurgence in the domestic timber market. This could lead to UK timber being an enticing investment option for those looking into the UK – maintaining jobs, output and value.”

RICS said “The RICS Royal Charter requires that the body serves the public’s interest and as such, it will not provide a steer on which way to vote. As such, the EU Referendum Paper, objectively examines various scenarios, but does not take the analysis to the next stage of a ‘stay or go’ conclusion.”

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