Brexit implications to UK Real Estate

Deloitte Real Estate partners comment on the effects of the Brexit vote on the real estate industry.

Tax
Siobhan Godley, partner in real estate tax, said: “A key consideration is that Brexit itself implies no immediate change in the real estate tax landscape as there are no immediate changes to domestic taxation or double taxation agreements as a result.

“Clients have offered mixed messages in the few days since the vote was announced, with concerns from some over the short-term outlook for investment tempered by the potential to take advantage of new opportunities for transactions seen by others.”

Audit and Valuation
Philip Parnell, partner and head of valuation at Deloitte Real Estate, said: “Auditors have two main near-term concerns as a result of the vote for Brexit - understanding the impact of foreign currency exposure for clients given the recent decline in Sterling, and how to deal with the uncertainty over valuations for the June valuation date.

"For the time being we expect Valuers to be focusing on deals completed in the weeks leading up to 23 June. These transactions were at least undertaken in full knowledge of the referendum occurring and therefore currently provide the best source of evidence. All cases will of course require careful review to consider the impact of sentiment in the wake of the Brexit decision but a lurch to any form of immediate 're-basing' is unlikely to merited.

“Sentiment will also need to be reflected upon. Initial concerns will likely focus on situations where there is immediate occupier risk, for example, speculative development and where asset management is seeking to take advantage of voids/short income. As long as a heightened degree of uncertainty prevails, there are likely to be calls for more frequent valuations, as we saw in previous times of heightened market volatility.”

Real estate occupiers
Martin Laws, partner and head of occupier consulting at Deloitte, said: “It is clear that occupational demand faces a greater impact from Brexit in some sectors than others. While financial firms stand out as perhaps most obviously at risk of headcount reductions, others, in the pharmaceuticals and aerospace sectors for example, could be at risk too.

“The majority of tenants, however, will not face any immediate imperative to move buildings or renege on lease agreements, and therefore any impact on leasing activity and firms’ occupation of space is likely to take time to be felt. The relatively low availability of space both in London and the regional markets should cushion any decline in rental levels. Ultimately, the UK’s, and in particular London’s, attraction to international business is not based entirely on the UK’s membership of the EU. There are many other factors likely to continue to attract companies to a UK outside the EU.”

Planning and Development
Clive Pane, partner and head of planning and development at Deloitte Real Estate, said: “Development inherently entails a degree of risk, which is only exacerbated by the uncertainty that surrounds issues such as the Brexit vote. However, the impact is likely to be far from uniform across the country. A slowdown in the prime central London residential market was already underway prior to the referendum, but just slightly further from the centre there remains a significant structural undersupply of residential development.

“In the short term, there are likely to be concerns over the viability of some new residential schemes given the level of affordable housing they entail, and therefore authorities may need to take a more flexible and pragmatic approach to affordable housing requirements to avoid schemes stalling.

“Outside London, there is a sense that some projects had been reconsidered ahead of the referendum, and others may now follow. But for every scheme that is delayed, several others are continuing regardless. Indeed, a number of developers are reported to have welcomed the vote to leave the EU.”

Construction
Mike Cuthbert, partner and head of construction advisory at Deloitte Real Estate, said: “The decline in Sterling is likely to produce short-term cost inflation for parts of the construction industry where materials are sourced from overseas, adding to cost pressures already in play due to the current shortage of capacity among contractors. In the medium term, however, with the Brexit decision causing some projects to be delayed or put on hold, the supply chain is likely to react with more competitive pricing as the prospects of a period of lower demand are assessed.”

Public sector
Vicky Smith, partner at Deloitte Real Estate, said: “A new budget, if announced, would be likely to reiterate the need for austerity within the government estate. However, the government may also choose to push ahead with major infrastructure projects, both as a way to stimulate economic activity, but also to signal ‘business as usual’. Greater clarity on the prospects for government infrastructure projects is likely to come following the announcement of new government leadership.”

End

Notes to editors

About Deloitte Real Estate
Deloitte Real Estate redefines the concept of a full-service real estate business, offering a breadth of capability and an innovative approach unequalled in the market. 

Our team combines traditional property services with financial and business advisory expertise to deliver integrated solutions on the most simple assignment to the most complex. We apply a depth of insight drawn from our understanding of all industries and sectors to advise occupiers, lenders, investors and the public sector on every aspect of real estate in an increasingly complex world.

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

Member of Deloitte Touche Tohmatsu Limited.