Denial, anger, bargaining, depression and acceptance: the five stages of mourning. And for most in property, that emotional arc captures reaction to the referendum result.
Denial, in hindsight, ran rampant in the run-up to the vote. We’re now mired in the anger phase. Let’s focus on skipping depression and cruising straight from bargaining to acceptance.
The result of the referendum was not the one wanted by the majority of this industry. As a sector we have a habit of talking up our own book; but today the real danger is that we talk ourselves into a downward spiral. That must be avoided at all costs. As IPF chairman Ciaran Carvalho said this week: “This industry has resilience. We will adapt whatever the circumstances.”
And already we are adapting.
The pound has yet to recover meaningfully from its pummelling, yet the FTSE 100 is back up to pre-Brexit levels. The prime minister may only be keeping the seat warm for his successor (and not, quelle surprise, Boris), but in Whitehall a 30-strong Brexit unit is taking shape and focusing on bargaining our way to transition. And while in property it is too early to say how quickly business will return to (a perhaps new) normal, retail landlords, for instance, are already talking of leases being signed.
And while London deputy mayor James Murray may warn that the “EU vote makes fixing the housing crisis harder”, housing minister Brandon Lewis maintains that residential provision remains a top government priority.
Even the dim view of this sector taken by the markets may be overblown. By Thursday morning, the FTSE 350 household goods & home construction index, which includes the major housebuilders, was 10% off its pre-referendum level; the FTSE350 REIT index – which counts Derwent, Land Securities and British Land among its number – was off 15% after recovering from a near-25% slump.
That begs a major question. It was fear of REITs’ exposure to London and the city’s future office occupancy that hurt their share prices. But is it London that will really suffer most?
Yes, most attention is focused on the financial services sector and whether some of London’s jobs will move back inside the EU. Yet London thrived as Europe’s financial services centre despite sitting outside the Eurozone. It’s not impossible that it will continue to do so. And, as one developer suggested this week, even if jobs move to Paris, French bankers might prefer to live in London and commute across the channel. As Hong Kong investor Goodwin Gaw put it more pointedly at our London Question Time event on Tuesday – full coverage of which will follow next week – would you really move to “soulless” Frankfurt?
It is other parts of the UK that, arguably, face greater pressures. Scotland’s neverendum saga continues. Ireland’s politics are growing complicated and regional warning bells are sounding. Yorkshire-based Caddick Developments’ director Johnny Caddick said the regions could be worst hit by “stagnation”. Another developer warned: “The Northern Powerhouse has to be at risk now as George Osborne is toast.” Alexandra Jones, chief executive of Centre for Cities, said the government’s devolution agenda was at risk of a “standstill” as political focus turned to Brussels.
At the moment much of this is guesswork. Valuers are inserting uncertainty clauses in quarterly fund valuations (p24). Agents say they have a lengthening list of potential buyers, but with no distress why would sellers sell right now?
Yet if London becomes more affordable from both an investment and occupational perspective, it should prove more attractive, not less. Meanwhile the devolution train will get back on track, and most top-tier regional cities have developed a strong story of their own in recent years, not just one based on relative value.
And despite the UK’s unfortunate, unwanted status as something of a laughing stock after the self-inflicted wounds of recent days, we should remember – and accept – that there is still much to celebrate, not least a capital that remains one of the world’s leading cities.
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