In the wake of Britain’s vote to leave the European Union, the sterling tumbled, consumer confidence waivered, and businesses delayed their expansion plans. There is little doubt that the repercussions of this decision will continue to reverberate for years as the nation and government come to grips with the reality of re-negotiating its place in European and global markets. As bankers across the City of London continue to draw up contingency plans for how they will do business in Europe, the UK’s property market has so far weathered the Brexit storm with great resilience.
In spite of an uncertain economic outlook, UK house prices have continued to rise overall, which reflects the favourable conditions of strong buyer confidence, a solid labour market, historically low borrowing costs and an ongoing supply shortage. Even though the stamp duty has taken a minor toll on the prices of prime London property, this has so far been offset by a surging demand from foreign investors seeking to capitalise on the sterling’s current vulnerability.
Whilst London will remain a hotspot in the post-Brexit property landscape, the questions surrounding London’s banking industry has many wondering what European cities may also experience in a property investment boost in 2017. One of the most obvious cities is Frankfurt, Germany. Despite its relatively small population, which is nearing 700,000 people, Frankfurt is already an established financial capital that sits at the heart of Europe’s biggest economy and is home to the European Central Bank, it is seen as the early favourite for financial institutions who may move their operations out of London. This potential influx of business and people, on top of the city’s reinvigorated development and cheap rents, would only further heighten the interest of property investors looking for alternatives in Europe.
Frankfurt is unlikely to be the only German real estate market set to be benefit in a post-Brexit Europe. Recent studies from Cushman & Wakefield1 has shown that Berlin has experienced an increased activity by international investors ranging from large property package deals in the housing market to investments in commercial and development properties.
If we cast our eye beyond the German border, we find a number of other European cities who are making a case for themselves as a favoured location for international investment banks looking to do business across the EU bloc. For example, Dublin’s appeal in a post-Brexit financial world has been bolstered by its proximity to London and a legal system that shares its common-law principles with those of Britain and the US. This is in addition to a real estate market in the midst of a robust recovery following the 2008 financial crisis. There are also definite signs that Amsterdam and Luxembourg are edging their way forward as attractive spots for expats and property investors thanks to their pre-existing offices of foreign banks and favourable tax provisions.
Another country whose property market has experienced an uplift from Brexit has been Spain. Although driven less by the interests of London’s banking institutions, the nation’s successive years of low interest rates and economic growth have led to more foreign investors spending their money on Spanish property. Unlike other European countries, such as Britain and France, where prolonged bullish market sentiment has led to high prices and low supply, Spain has a much better supply-demand dynamic that has kept prices lower than those of other major European cities. With cities like Barcelona and Madrid becoming increasingly big players in European market trading, as well as Latin America and North Africa, there is good reason to believe that investment will continue to thrive in Spain’s property market.
As we wait to see the impact of when Britain triggers Article 50, there is good reason for tempered optimism amongst property investors both in London and Europe in 2017.
Article as published at the Institutional Real Estate Europe, page 39