EU Referendum – Who Wins?

By the time of going to press, the EU referendum will be imminent and the debate about the UK’s future will be no more certain. But in the event of a vote to leave, it’s not just the UK and London that will be impacted. The implications for the rest of the EU could also be significant, particularly at a time when existing linkages such as Schengen are under pressure. On balance the EU must be weakened by the loss of a relatively large trading and military power and there will also be implications for the supply chain in many industries.

A bigger risk however may be in opening up questions on a range of what otherwise would be considered “irreversible” decisions – from open markets to national unity.

EU referendum - who wins?
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 some jobs being relocated to the continent to avail of free market access and the city’s competitiveness reduced. Other cities across the continent will be waiting in the wings to take advantage. We would expect EU locations with a significant financial and business services sector to pick-up activity from London. Having said this, only Paris and Frankfurt are of sufficient size and with deep enough labour pools to offer viable alternatives to London but an inflexible labour market and watered down reforms may impact the attractiveness of Paris.

The repercussions of the UK vote could therefore be significant at many levels and whilst we can’t know more until events unfold, it will clearly affect investment strategy in Europe. To gauge reaction we surveyed the opinions of investors from outside of Europe with global CRE holdings in excess of $650bn, who are active in the UK and the rest of Europe. All those surveyed were fully aware of the impending referendum.

Over half of those surveyed have said that Brexit has led them to pause investment in the UK. The key word there being ‘pause’ – any market going through uncertainty sees decision delay. One of the factors adding to the uncertainty is that many companies simply do not know how a vote that changes the status quo would affect them.

London may be in a stronger position than regional UK cities but it will still be less favoured by some and other global cities could gain at its expense. Europe could well be a winner, with just over half of those surveyed saying they would invest more into Europe, but the remainder saying they would invest less, implying wider uncertainties for Europe in its current challenging environment.

Finally, it’s worth noting that a wider and more fundamental concern would be over the future of the European Union itself and whether the departure of the UK would set a precedent for other member states. Should the withdrawal of the EU’s third largest market by population turn out to be a success then nations that have also expressed anti-EU sentiment may also feel pressure to renegotiate their relationship with the EU and may also even vote to leave. A prolonged period of increased political risk is not healthy for investment in any country and would likely lead to more losers than winners in the event that such an, albeit unlikely, scenario were to prevail.

Nigel Almond, Head of Capital Markets Research

Nigel Almond, Head of Capital Markets Research, EMEA

This article originally appeared in Capital Watch issue 2 2016.


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