The odds against a Brexit are moving in, but even at the 2/1 being offered by some bookmakers, a vote to remain still looks to be the likely outcome of this month’s referendum. However, it would be foolish to write off completely the chance of a “leave” outcome, given the ferocity of the campaign, the closeness of the opinion polls and the concerns over the potential negative downside effects expressed by CBRE’s investor clients.
Our research tells us that more than 70% of investors believe Brexit would make the UK less attractive for investment. But what effect would a Brexit vote have on other European cities?
Most of the work done on the potential impact of a Brexit has focused on traded goods, but it is its effect on services, especially financial services, that is important for commercial property, and London property in particular. This is understandable given the importance of passporting and the eurobond trade. If international financial services jobs leave London, Frankfurt and Paris are the cities most likely to benefit.
London’s rival: Frankfurt
Although Milan and Madrid have more financial services jobs, Frankfurt is seen as more internationally orientated. HSBC has said it has contingency plans to move 1,000 investment bankers to Paris. JP Morgan, Bank of America Merrill Lynch and Goldman Sachs have also talked about relocation, but have been less specific about where.
Despite the rumoured preference for Paris among some bankers, Frankfurt, at number 18, is the highest-ranked EU Global Financial Centre after London, according to the respected ZYen Global Financial Centre Index 2016. Paris ranks only 37th, ahead of Warsaw and behind Amsterdam. Despite that, there is a sense of anticipation in Paris and French economy minister Emmanuel Macron has been merrily taunting British politicians with his promise that Paris will roll out the red carpet for London bankers. Dublin and Amsterdam could come into the reckoning, too.
Despite the focus on financial services, however, evidence shows that tech companies are more concerned about a Brexit than was first thought.
One survey that focused solely on London-based tech companies found that 81% of its respondents are in favour of staying in the EU. The main reason for this result is that they rely heavily on skilled workers from overseas. They feel a Brexit would hinder recruitment and would slow their ability to move rapidly against rivals and bring talent into a competitive field.
Nor is the concern limited to small companies. Recent research in the national press has also found that five of the UK’s 14 “unicorns” – private tech companies with a value of more than $1bn (£693m) – are explicitly pro-EU (the rest have not come out either way).
Technology firms are at the forefront of economic growth, new technologies and international competitiveness and they attract highly skilled and sought-after people. Many of the brightest and best come from central and eastern Europe and whatever system is introduced, it will be less flexible than what we currently have.
Entrepreneurial climate
In the digital-tech world, London competes not only in terms of size, but also in terms of entrepreneurial climate. It is an attractive location for a cosmopolitan workforce. CBRE analysis shows that its nearest competitors are Berlin, Paris, Dublin, Stockholm and Amsterdam. Some of these are already competitive in terms of cost and lifestyle, and they will all be looking to capitalise on London’s problems if the UK does vote for Brexit.
It looks like CBRE’s UK investor clients might be right to worry about the impact of a Brexit, but the losses to UK investors could turn into gains elsewhere in Europe.
• Neil Black is head of EMEA research, CBRE
