What impact will Article 50 have on the property industry?

22nd March 2017

Downing Street has confirmed that Article 50 will be triggered next Wednesday (29 March). What impact will the start of formal proceedings have on the UK property market?Responding to the prospect at MIPIM last week, Derek Jacobson, co chief investment officer at New York-headquartered Madison International Realty, said: “I think it’s clearly something to watch. The whole Brexit discussion has been theoretical up to now and the big question is how that will develop and what will happen in the near term.”However, he said Madison − which made a bid to buy British Land’s 50% stake in 122 Leadenhall Street, EC3 − was still “pretty bullish” on London compared with European cities.

“You have to think of it also on a global investor perspective on a relative basis, so clearly there’s turbulence in the US with Trump and everything that is happening,” he said.“On the Continent as well there’s elections coming up and I’m not sure what the European Union is going to look like in the future so despite Brexit, which is certainly a topic and has been for many months, and despite Article 50 looking like it’s coming closer, in some ways you could argue that the UK looks pretty stable.”

Unchanged appetites.

Andrew Stainer, AXA IM – Real Assets’ global head of asset management, said he had several meetings last week with large institutional investors whose commitment to the UK was “unchanged”.He said: “We have four countries in Europe that are particularly strong for us – France, Germany, the UK and Switzerland.“In terms of the UK, about 75% of our portfolio held on behalf of our clients is focused on the South East in London. London is one of the greatest, most transparent, liquid real estate markets in the world, so our commitment to it is unchanged and the commitment of our investors to that market is unchanged.”Pavel Trenka, group chief executive of Slovakia-headquartered HB Reavis, which has developed three office buildings in London, said he saw the UK as a “crystal ball” which could go either way. However, he said the firm remained committed to having a third of its portfolio in Europe by the end of 2018.“We are staying positive, we still see strong fundamentals on the occupational side, so I think that’s for us the most important,” he said.In particular he is hopeful that the demand from TMT occupiers will remain unchanged, although he admitted he has found potential occupiers in London reluctant to make “any big decisions” on leasing space recently.

 Attracting investors

The UK government sent three ministers to MIPIM last week, and took a pavilion for the first time, as part of a bid to convince investors that the UK remained an attractive place to invest.International trade minister Mark Garnier told EG that the UK looked relatively secure. “At least, in a funny sort of way with the UK, the one thing you do have is a certainty that you know where it’s going,” he said. “We still have to strike a deal with the EU, we haven’t triggered Article 50 yet, but that will be happening within the next two weeks. It’s going to be a long process, but we know the journey that Britain’s starting on and this is a really important point. Britain is not moving away from the EU, we will continue to be a trading partner with the EU, they will continue to be our best friends, and we’re certainly not leaving Europe. But what we are doing is embarking on a journey to internationalise this country, much, much more than it has been in the past.“And it’s worth considering the UK as an exporter, the value of our exports is just 27% of GDP – oddly that makes us one of the smallest exporting nations in the EU. We want to change that. We want to attract more global investment, we want to export the Great British brand to other countries. This will continue to push the UK up the GDP per capita scale and that’s something which I think all investors want to see.”One way in which he said government was helping attract investors was by reducing corporation tax to 17%.He said: “We will be the lowest corporation tax rating in the G20 in the not too distant future. What we’re creating is an incredibly exciting opportunity for businesses to come and do some very interesting things. Your corporation tax is very low, your public services are very, very good quality.“Combine those together, it’s a great place for people to come and work. We attract best quality skills in the world, we’ve got the financial services hub of the world, we’ve got some really, really big opportunities there.”

Real estate contribution

Melanie Leech, chief executive of the British Property Federation, welcomed the triggering of Article 50 as it provided some level of certainty to the industry, but said the government needs to “both understand the real estate industry’s contribution to the UK’s success, and what it will take to ensure that it can continue to deliver growth and productivity”.The BPF’s manifesto priorities for government are: maintain investor confidence in the UK and drive growth; provide fair, competitive and stable tax, regulatory and planning systems; invest in infrastructure and free up public sector land; help us to ensure access to global talent and skilled workers; and support more housing supply across all tenures.