May 15, 2015

Businesses may have breathed a sigh of relief when Britain voted in the Conservative government, removing the threat of the greater regulation and tax burdens proposed by the Labour party, but property investors are now turning their attention to one of the new government’s main electoral pledges.

Prime Minister David Cameron’s has promised an in/out vote on the UK’s membership of the European Union. Originally slated for 2017, it’s now tipped to take place as early as next year.

While the old adage ‘markets hate uncertainty’ rings true in the real estate sector whenever major political decisions are set to take place, JLL experts believe that the impact of the referendum on real estate investment volumes will be minimal, not least because the expectation that Britain will leave the EU is low.

“Despite all the rhetoric and sloganeering, the UK is unlikely to leave the EU, although the risk will increase if David Cameron cannot obtain at least some concessions, ” said Jon Neale, Head of UK research, JLL.

“Big businesses are overwhelmingly in favour of remaining in the EU, while smaller companies are more equivocal.

“Despite some ardent views within the Conservative party in particular, David Cameron, the two main parties, as well as the SNP in Scotland, would campaign to remain,” he added.

A narrow poll recently revealed the British public to be less Eurosceptic than popular image suggests. 40 percent said they were in favour of remaining within the EU, while 39 percent voted against and 21 percent claimed indecision. The under-45s and the professional classes, in particular, remain more positive towards Europe.

Even with the further complication of Scotland’s own bid for independence from the UK, the SNP – Scotland’s majority party – is enthusiastically pro-European.

While long-term occupational decisions of British business could be affected by the referendum – with the exception of financial services companies and other large corporates who like the idea of an English-speaking country within the European single market, the continuity of a Conservative government will bring some comfort to investors and developers. London’s attractions for commercial investors will remain unchanged, while the residential housing market, in particular, will benefit from a legacy of supportive policy from the previous coalition.

For Christian Ulbrich, CEO of JLL’s European business, retaining EU membership is a market imperative: “It is encouraging that the UK voters have provided a clear mandate to one party, now we all have to focus on convincing the British people of the benefits of being part of the European Union,” he said.

Britain’s EU membership will be hotly debated over the next 12-24 months, perhaps with ramifications for the bond market and its effects on capital flows, but the UK’s position as Europe’s real estate investment capital is likely to remain.

Neale added: “Whatever happens the attractions of London and the rest of the UK to property investors will undoubtedly remain, with the prospect of a referendum barely blunting the overwhelming level of demand.”

Click here for more JLL analysis on Brexit


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