The UK and EU opening positions were revealed this week for the start of trade negotiations. With a financial services deal – arguably the most significant sector for UK real estate – now being discussed, here are six key Brexit developments you need to be aware of.
What next for banks?
The future of the UK’s 5,500 financial services companies and their office footprint is now at the top of the government’s negotiating agenda.
Chancellor Philip Hammond this week confirmed “passporting” rights would not be continued post-Brexit, but he argued the UK financial services industry should keep access to the EU through a bespoke trade agreement with equivalent levels of regulation.
He said it was in the interest of the EU to benefit from “the deep pools of capital, specialist skill and regulatory competence in London”.
The UK manages €1.5tn of assets on behalf of clients; around two-thirds of debt and equity capital raised by EU corporates is facilitated by banks based in the UK.
However, the draft guidelines for talks circulated by the EU discussed limited arrangements for regulatory co-operation and made no mention of financial services.
What does the research say?
Estimates of financial services job losses relating to Brexit vary enormously.
However, based on evidence so far, job losses are unlikely to be more than 5,000 by the end of 2019, which would equate to 0.6m sq ft of negative net absorption, according to real estate research firm Green Street Advisors.
However, it also says that uncertainty on a Brexit deal could result in material disruption. Over a 5-7 year period, up to 20,000-25,000 jobs could be relocated in total, amounting to negative net absorption of nearly 2m sq ft.
The City
Launching a defence of the City of London, the chancellor said: “EU passporting did not create the City of London, nor did some smart regulatory fix or government incentive.
It is a combination of intangibles: language, legal system, time zone, culture, networks, risk appetite and regulatory approach, all blending together to create an ecosystem, an immensely potent combination of factors impossible to replicate, or perhaps even to map.”
A survey of 101 global institutional investors, published this week by the City of London Corporation and City Property Association, found that London was the best European city for businesses according to 58% of institutional investors, the clear frontrunner of all the European cities.
Clearing houses
This week, Euroclear, a clearing house which occupies 41,600 sq ft at 33 Cannon Street, EC4, on a lease expiring in March 2019, announced it will relocate its holding company from London to Brussels later this year.
The euro clearing market is the envy of other European financial centres and is a critical part of London’s financial services sector and the volume of business can sometimes exceed $900bn a day.
London’s clearing houses such as LCH, which occupies 58,000 sq ft at Aldgate House, EC3, and Deutsche Borse Group’s Eurex, which occupies 22,500 sq ft at 11 Westferry Circus, E14, are at the centre of a battle between negotiators and chief executives.
Hammond this week warned EU negotiators that a relocation of London’s clearing market would not necessarily benefit the EU.
He said: “Intercontinental Exchange announced plans last month to launch daily gold futures contracts in the US next year, based on metal held in the UK. Those who think that the major winners for any fragmentation of London’s markets would be Paris or Frankfurt Dublin or Luxembourg should take note. The real beneficiaries are more likely to be New York, Singapore, and Hong Kong cutting Europe’s market share.”
Skills access
Last week, prime minister Theresa May appeared to adopt a more flexible approach towards accessing skilled EU workers and students, while confirming her commitment to the end of free movement.
In a speech on Friday, she said: “UK citizens will still want to work and study in EU countries – just as EU citizens will want to do the same here, helping to shape and drive growth, innovation and enterprise. Indeed, businesses across the EU and the UK must be able to attract and employ the people they need. And we are open to discussing how to facilitate these valuable links.”
Patrick Brown, head of insights and EU engagement at the British Property Federation, said the speech “was a bit different from the tone of the leaked immigration paper white paper which we understand is likely to change quite substantially, so perhaps there is a glimmer of hope”.
“Access to the best people [post Brexit] was something which we found was a big concern when talking to our members.”
What’s next?
May, in her speech, urged the EU to “get on” with discussing its vision for economic relations with the UK.
So far, negotiations have been focused on the divorce bill so it was significant as marking the start of trade negotiations.
Brown said: “The speech seemed to represent a bit of a sea change in the attitude towards negotiations, where there is an acceptance that for enduring co-operation, something that isn’t a Canada or Norway-style deal off the peg, if the UK wants that it needs to be forthcoming with a model for that and I think that’s what May sought to do – even if some of the ideas expressed in the speech were old wine in new bottles.”
The next important date is the EU Summit on 22-23 March, which will formally mark the beginning of negotiations on future trade arrangements and the likely conclusion of the arrangements for the transition arrangement.
To send feedback, e-mail Louisa.Clarence-Smith@egi.co.uk or tweet @LouisaClarence or @estatesgazette
