Chicago, IL–March 14, 2019—The European Chapter of The Counselors of Real Estate®, in cooperation with the Royal Institution of Chartered Surveyors (RICS), hosted a Brexit conference on February 28 in London, with panelists offering far-reaching insight on the increasing degree of uncertainty since the United Kingdom voted in a 2016 referendum to leave the European Union.
Tomas Ctibor, CRE, chairman of The Counselors’ European chapter; Hans Vrensen, CRE, head of research and strategy, AEW Europe LLP; and Peter Cosmetatos, CEO of the Commercial Real Estate Finance Council (CREFC) Europe, were among those exploring Brexit’s potential impact on the global real estate market.
With the upcoming Brexit target date of March 29, 2019, real estate is generally thought to be in a relatively resilient position, with modest leverage in the sector and no imminent supply-demand imbalance. The speakers agreed that property continues to be a good relative value compared to other assets, and believed a reduced need for both retail and office space in the future will offer opportunities for conversion of existing office buildings to residential use. Conversion from retail to residential was seen as more problematic, as it might require larger write downs from current values.
Jon Neale of JLL sees Amsterdam as the biggest European beneficiary of international bank movements after Brexit. New York would also benefit as it strengthens its position as a global financial center compared to London. With economic and financial market sensitivities at elevated levels, central banks have realized there is limited room for rate normalization.
Lord Jonathan Hill, Britain’s former EU commissioner, told the audience that the U.K. political debate on Brexit has lacked honesty. He said it was unrealistic to expect that the U.K. would have a better deal outside the EU, given the political red lines that were made clear by the EU from the outset, and which have not changed. He believed the 2.5-year deadline was impractical and felt that 10 years would have been a more realistic period to undo the many different ties that bind the U.K. to the EU.
John Plender, senior editorial writer and columnist for the Financial Times, noted the U.K. has always been skeptical about the political aspects of the EU experiment, fearing the creation of a “United States of Europe.” He said the EU faces external challenges from China, Russia, emerging markets, and an unpredictable U.S., as well as the fact that many central and eastern European countries do not share core EU values of representative democracy. Despite the challenges, Plender believes it would be better for the U.K. to stay within the EU to help shape its future as a more agile, open and strong political block, able to stand side-by-side with its U.S. ally and offer a better counterweight against the Russian political and Chinese economic threats.
The general consensus among conference speakers was that a reversal of Brexit, while technically possible, was a very unlikely prospect. The U.K. could achieve it by unilaterally revoking Article 50 of the Treaty of the European Union and only with a suitable legal basis such as a new referendum or general election.
A number of speakers pointed out that leaving without a deal would almost certainly create a very hostile climate for any negotiations the U.K. might seek with its largest trading partner, Ireland. The risk of a disorderly Brexit has already led to a number of international agreements to avert problems in sectors such as financial services and transportation. The EU 27, its member states and the U.K. have each taken different approaches to helping their businesses and citizens prepare. A legal panel of experts from the London-based law firm of Herbert Smith Freehills stated a 2-3 month delay to allow implementation of an agreement could be a likely outcome. A longer delay, which would run into the next European Parliament, was much less plausible, unless it was linked to a change of approach by the U.K. to allow for a second referendum to be held.
The Financial Times’ Plender highlighted that one unexpected consequence of Brexit has been that support for the EU across Europe has increased due to the U.K. showing how leaving is not only difficult, but possibly harmful. Treaty and structural reforms to improve the EU’s credibility, accountability and legitimacy may be a positive consequence. The U.K. could find it more difficult to negotiate new trade agreements since the EU, U.S. and China are each re-balancing their own trade relationships to avoid a possible trade war.
For additional information on the Brexit conference, visit https://cre.org/real-estate-issues/.
The Counselors of Real Estate® is an international organization of commercial property professionals from leading real estate, financial, legal, and accounting firms, as well as experts from academia and government. Membership is extended by invitation. A stringent selection process ensures individuals that are awarded the CRE credential have attained the highest levels of expertise and achievement in their real estate specialty, particularly in offering sophisticated advice and high-level problem solving. The organization is known for thought leadership, extraordinary reach, an uncompromising commitment to ethics, and the objective identification of the issues and trends most likely to impact real estate.
CRE designees have created and endowed the MIT Center for Real Estate, resolved the dispute between the developer of the World Trade Center and its insurers post 9/11, led the privatization of U.S. Army Housing, and valued both the Grand Canyon and Yale University. Counselors reside in 20 countries and U. S. territories.
For more information on The Counselors of Real Estate®, visit CRE.org.