As a famous 1970s British newspaper headline asked sarcastically during a period of great difficulty and uncertainty for the country: "Crisis? What crisis?"
That sentiment was echoed by a handful of senior U.K. real estate figures as they discussed the performance and prospects of the sector amid the uncertainty generated by the Brexit stalemate gripping the country's parliament.
"Ignore Brexit, the demand is there," said Edward Lister, chairman of Homes England, an executive nondepartmental public body sponsored by the U.K.'s Ministry of Housing and charged with tackling the country's chronic housing shortage.
Senior figures from the U.K.'s real estate industry discuss the potential impact of Brexit on the market.
Source: S&P Global Market Intelligence
Speaking at the MIPIM international property conference and exhibition in Cannes, France, on March 14, Lister and his co-panelists debated the market's prospects in the context of the latest failed attempts by the U.K. parliament to agree on how the country should leave the European Union. In the days since, uncertainty has grown, as it now appears highly unlikely that the U.K. will leave the EU by the March 29 deadline set almost two years ago.
Economists have long warned of the catastrophic damage a messy divorce from the EU could inflict on the U.K. Still, the panel was upbeat on the prospects for the U.K. real estate sector regardless of the Brexit outcome.
"It's important to exhibit confidence that the fundamental features of the U.K. market are here to stay," Bill Hughes, head of real assets at U.K. insurance giant Legal & General Group PLC, which has £22.20 billion of real estate investments in the U.K., according to its website. "The sky is not going to fall in [after Brexit]," he added.
"L&G's absolutely not stopping any of its activities at all," Hughes said. "In fact, if anything, the quantum of net investment we're making into the U.K. market in 2019 will be higher than 2018, because we see an opportunity." The volume of undeployed capital that wants to invest in real estate globally is twice what it was five years ago, and this will only grow as long-term pension funds look to derisk, he added.
The panelists' optimism is supported by the latest data for 2018 on the U.K. market from JLL. The U.K. retained its No. 2 global ranking for real estate investment, with $83.00 billion invested in 2018, second only to the U.S., the data showed.
London remained the world's top city for real estate investment, with $36.30 billion transacted in 2018, compared to New York's $31.41 billion in second place, JLL's Alistair Meadows said in a presentation. And London was by far the world's top destination for cross-border investment in both 2017 and 2018, beating New York and Paris, respectively, into second place those years.
"There is a difference between perception — and obviously what people see in terms of Brexit from a media point of view — and reality, which is what [JLL sees] on a day-to-day basis, and the activity and behaviors of both investors and occupiers, which has been incredibly robust and resilient over the last two years," said Meadows. Still, Meadows said he expected data for the first quarter of 2019 to show a slowdown in investment as investors hold off making decisions prior to the March 29 exit date.
London will not be the only U.K. location to survive and thrive after Brexit, the panelists said. Many of the U.K.'s largest regional cities are primed to attract major investment both domestically and internationally, they said.
"There's another U.K. story [beyond London] about signature, generational infrastructure projects," said Nick Walkley, chief executive of Homes England, referring to major investment by the government in road and rail projects. "They are changing the economic and housing geography of cities by connecting them together and connecting them particularly with London.
"Those infrastructure investments show a government intent on creating the right kind of investment platforms outside London," Walkley added. "That creates the opportunity in the longer term for investment where there is demand right across the U.K."
The performance of some of the U.K.'s largest regional cities provides a strong case for attracting increased interest from investors, JLL's data show. Office take-up in the U.K.'s "Big 6" — Glasgow, Edinburgh, Manchester, Leeds, Birmingham and Bristol — enjoyed its second consecutive record year in 2018 as around 6 million square feet was occupied.
The attraction of the U.K.'s largest regional cities to investors will only increase as central government devolves more power to local authorities and their recently established mayoral positions, said Hughes. "With that new localism comes great opportunity," he said. "At L&G, [we] tend to see greatest opportunities away from where global capital goes. People talk about the 'Big 6,' we would say there is a 'Big 12' of cities that are all very exciting in which to invest."
Melanie Leech, chief executive of the British Property Federation, a nonprofit membership organization representing U.K. property companies, said any short-term impact of Brexit uncertainty on real estate investment or the economy would be overcome by the country's attributes.
"Looking to the long term, our world-class universities, our legal system, [our position as the world's leading market for] transparency, all of those things make the U.K., and will continue to make the U.K., a hugely attractive place to invest for the long term," she said.