IMPACT OF NEW EU/UK RELATIONSHIP ON REAL ESTATE
Now that a deal has been struck and the UK and the EU are turning their attention to the transition process, it is natural that people will begin to question how this new relationship will affect real estate businesses and investment. The fact that uncertainty around Brexit has not affected the EU in the way it has the UK, and the rollout of COVID-19 vaccination programmes, has caused renewed confidence in the European market.
During the next 12 months, we can expect to see a lot of European capital deployed in the London market. In fact, in the recent CBRE Investor Intentions Survey 2021, in which over 400 Europe-based investors participated, London was voted the most preferred city for investment. This highlights its continued appeal and standing within the real estate investment community now that the Brexit agreement has been agreed. Berlin, Frankfurt, Paris and Amsterdam were also voted in to make up the top five, clearly signalling positive investor sentiment towards some key European cities.
Having avoided the prospect of a no-deal Brexit, the fundamentals of both the European and UK real estate markets should both continue to be attractive investment destinations for investors based within Europe and internationally. Because legislation regarding real estate is generally domestic in nature, Brexit has had relatively minor impact on UK land law. This is also true for the following EU real estate fields that would not be impacted by the significant and structural change of Brexit : all legal formalities and requirements relating to land ownership, land registry, leases, the conveyancing process, securities over land and land taxes, which are largely unscathed by Brexit. This is largely governed by each domestic law.
Brexit should not trigger consequences upon the substance of existing contractual obligations and any contracts entered into by parties submitted to UK law, will remain in full force and effect unless specific termination rights exist.
Any relevant EU law in force at the end of 2020 was adopted, alongside any required amendments, into UK law as part of the European Union (Withdrawal) Act 2018.
INFLUENCE OF EU LAW
The decision to import EU law into UK law allows for continuity in both the legal and regulatory culture of the UK. As previously stated, this means that there are relatively few short-term changes to real estate issues, for example, business rates state aid and Environmental Impact Assessments. This has created a sense of continuity that should be lasting. In the long term, however, it is likely that UK law will eventually diverge from that of the EU, which could introduce unforeseen tensions and costs. Alternatively, it could also be viewed that UK sovereignty will provide the chance to radically overhaul legislation, but it remains to be seen whether and how this transpires.
KEY CONSIDERATIONS FOR REAL ESTATE BUSINESSES
Despite Brexit and the pandemic, the global search for yield will endure, investors will be looking to access the real estate sector and all major European markets are set to benefit. However, companies involved in real estate are advised to consider the wider commercial and market related ramifications of the Brexit transition on their business. These considerations tend to relate to the delivery of construction projects and the potential impacts on their supply chains.
Many UK-based financial firms have already opened subsidiaries in the EU to keep unfettered market access known as “passporting” and to make sure they can keep trading in France. The “swift” flow across the Channel includes both (i) French groups moving assets home from British branches and (ii) moves by UK-based entities.
Because of the situation, US bank JPMorgan Chase has recently purchased a new building in the heart of Paris capable of holding 450 people, following Brexit. Because of the Brexit, JP Morgan apparently wants to transfer 200 billion euros to Frankfurt. This would make JP Morgan the sixth-largest German bank. In addition to JP Morgan, Citigroup, UBS and Standard Chartered also want to strengthen their presence in the German financial metropolis.
JPMorgan now has about 10,000 people based in London and 260 employees in Paris, with the new building in the French capital creating capacity for an extra 450. It also has roughly 500 people in Frankfurt and 450 in Luxembourg. The number of employees in Germany is apparently to be greatly expanded
Bank of America, Goldman Sachs, Nomura, Banco do Brasil and Barclays have also relocated in Paris.
The move "will give the bank the opportunity to pursue growth in France, in line with its strategy to continue to serve its European clients seamlessly from the continent's major cities, including Frankfurt, Luxembourg and Dublin."
According to the German Bundesbank financial institutions have already moved business worth 675 billion EUR from the UK to Germany by the end of 2020. Accordingly 60 new banking licences were issued for banks relocating to Germany. What is more it is foreseen that that the relocated volume of business will rise to a total of 1.2 trillion EUR by the end of 2022. Another example portraying the companies' escape to the European Union is the Luno Fashion Limited which relocated from London to Dusseldorf, Germany.
The transfer of companies would increase the pressure on the Cities welcoming such entities and will have to plan ahead to provide adequate housing opportunities, regarding the relocation of staff and their families. When, for example, the European Centre for Medium-Range Weather Forecast had to establish a new EU location outside of the UK. Germany was able to attract with a "full-service" concept offering a completely new campus to the Centre for Medium-Range Weather Forecast that also included the infrastructural connectivity and attractiveness for the employees and their families. This looks like it will change in time as many workers have realised that they can work further afield. It is a demand-side trend that Instant has seen across many markets during 2020 and it points to a real opportunity for those operators that feel their model can be replicated in new, alternative locations.
