Brexit would have short term impact on real estate

Rafał Ostrowski ‘Eurobuild Central & Eastern Europe’: If on Thursday Britons decide to leave the European Union, what impact would it have on the real estate market in Great Britain and the rest of Europe?

Andy Rofe, managing director for Europe at Invesco Real Estate: We hope that the Brexit doesn’t happen and I think that the opinion polls and the betting markets are moving in the direction of predicting that the UK will remain in the EU. But if things move the other way, I think there will be certainly a short term impact, particularly in the UK. Ironically, I think that UK economy won’t suffer that much, since sterling will depreciate, which will help the export market. But in the short term there will be an impact on the real estate markets – and mainly because of the uncertainty. So the capital markets will withdraw in the short term, that will have an effect on pricing, which will drift out, and people will take a ‘wait and see’ approach in terms of whether they take up new space, which will have an effect on the tenant demand and a knock on effect on rents.

And what about the rest of Europe?

How it will affect mainland Europe is a good question. I don’t think it will have an immediate impact. The investor community doesn’t like uncertainty, so a Brexit wouldn’t encourage international capital to look at Europe, because it gives investors an excuse just to sit on their hands. That wouldn’t help particularly, but the European markets are dominated by domestic players and I think within each country’s environment a Brexit wouldn’t have a huge impact. The medium term impact of a Brexit would be largely political and the potential knock on effect on other countries. And then you could see some major impacts, but I think that would take a number of years to play itself out.

And for Poland?

There are lot of Polish people in the UK – it is the largest national minority in the UK of all the countries that have people there. From the Polish point of view, I read this morning that as much as 10 pct of the Polish population had emigrated in the last decade or so, which is of course a concern for the Polish government. If there is a Brexit, ironically it might help to reverse some of that immigration, which may not be such a bad thing for Poland in general in the short term. But will it have an effect on the market in Warsaw? Probably not. And arguably, particularly with the UK less attractive short term, would the yield premiums you enjoy by investing in Warsaw become more attractive? – possibly so.

But you don’t see it changing your strategy as regards investing in Poland or the rest of the CEE region?

No. We are continuing to advise clients that there may be a repricing effect in the UK in the event of a Brexit. If you are looking to invest in real estate in the long-term, which is what we do, this is how we are advising our clients – that if repricing occurs in itself it represents a buying opportunity. Because the UK’s fundamental economic situation between June 22nd and 24th will not change. So the main drivers and the depth of the economy will still be driving all the factors that we have today.

Thus the repricing will only be based on sentiment and that period of uncertainty will cause the capital markets to slightly dislocate. But will that affect our strategy in terms of looking at quality buildings and gateway markets such as Warsaw? No. And it may well be that you will see more capital flowing into continental Europe as investors elsewhere take a pause, particularly in the UK.