“Without question…” That was the response that Mark Carney gave when asked whether some degree of loss of financial services business could be expected post Brexit if full mutual recognition was not retained.
While we can debate whether the Bank of England should have become involved in the discussion, Mark Carney is not alone in his opinion. The majority view is that London’s position as a world financial services centre is likely to be undermined if we vote to leave the EU, with expectations of jobs being relocated to the continent to avail of free market access and the city’s competitiveness reduced.
But in reality, many financial services companies are already considering relocating some functions out of London and a vote to leave will only accelerate this process. However not all financial services companies believe staying in the EU is for the best, with Hedge Funds in particular looking forward to a world outside of stifling EU regulation. Whatever the outcome of the referendum, the associated uncertainty is already impacting on financial services firms, with a number already putting property decisions on hold until, at least, after the vote.
For professional services companies, a vote to leave may, in the short term, bolster business as firms seek to understand the implications but longer term if there was a serious migration of financial services and multi-national companies to continental Europe, linked professional services may seek to restructure their operations and move some of their staff and offices abroad. However, the professional services sector is more fragmented across Europe and exports much of its services to non-EU countries and the impact is likely to be less severe than for the financial sector.
But London’s property market is increasingly diverse, being fuelled in recent years by the rise of the tech sector. The sector has created more jobs over the last five years than financial services and total employment numbers are expected to outstrip financial services by 2020. Much of this expansion has been supported by the ability of the sector to attract both companies and talent from overseas and to secure funding for growth. To date, we have yet to see talk of Brexit impact on tech occupiers’ property strategy, but we know that the war for talent is a challenge for the sector and in a world post Brexit, this ability to recruit and retain talent from within the EU is one of the sector’s biggest fears for future growth.
Without question, we do not know what the future ‘out’ scenario is likely to be and we cannot know the extent or seriousness of those setting out contingency plans. As with most of the EU debate, mixed messages are emanating from our occupier client base, with no consensus even from companies within the same sector as to its impact on business strategy.
We are more certain that the short term impact will see a number of occupational requirements deferred until post June and if we remain in the EU, activity is likely to recover relatively swiftly in the second half of the year.
In the event of a vote to leave, it is unlikely that there will be an immediate rush to relocate employment from London to the continent but it could lead to a brake on recruitment and expansion. In turn, this may result in a moderation in leasing volumes and more space available to sublet in the short term. It is highly likely that the City will be more vulnerable to any moderation in activity than the West End but this could create opportunities for occupiers to secure better rental deals.