Signs that a ‘soft Brexit’ might be the final outcome of the upcoming trade negotiations with the EU will have significant implications, according to Knight Frank.
“It is now clear that the UK and EU’s preferred outcome for a future UK trade agreement is one based on regulatory alignment,” said Henrie Westlake, head of Knight Frank’s office in Leeds.
“Accepting that nothing is certain until we see the final deal, there is a growing possibility that the UK is heading for a Brexit in name only. So what would be the consequences for the UK economy and real estate?
“In 2017, market sentiment towards UK property has been more pessimistic than the statistics justified. If the news in 2018 continues to point towards a soft Brexit, we would expect more investors to look at UK property, including Yorkshire.
“The Brexit process has inevitably dampened our economy in 2017 due to the sheer uncertainty it has created. We have no idea what the regulatory alignment will look like, and whether businesses will view it as an effective replacement to being in the EU. Inevitably, defining alignment will be politically controversial in the UK.
“Overall, the Phase One Brexit deal will in the short-term have a positive but limited impact on the economy, and the commercial property market. It will help cast doubt on the worst case scenarios that have been weighing on sentiment, but there is not enough detail on the more important final deal to create a definitive turning point; at least for now.
“However, both the economy and the real estate market in Yorkshire can now see expectations on the long-term outlook begin to gradually improve if more evidence emerges confirming that a soft Brexit is probably going to be the final outcome.
“At present in the property market, there is a huge gap between sentiment, which is very cautious, and the statistics, which in most property markets are steady, if not improving.
“After an 18 month bombardment of Brexit gloom and political uncertainty, statistics like unemployment at a 42-year low barely make an impression.
“However, if the view that we are heading for a soft Brexit is confirmed by the details of the trade talks during 2018, then the statistics could start to overshadow the gloom in investors’ minds.
“Those who pre-empt the starting pistol will have already bought the best assets by the time May and Juncker shake hands on the final agreement.
“An old saying in real estate is “the turning point is either six months away or six months ago”, and the investment market may be approaching one of those unseen changes of direction.
“This will also be true in the occupier market in Yorkshire. If landlords become less concerned about Brexit, they will soon rein back the generous incentive packages on offer at present.
“While the pundits have fretted over financial sector demand for offices, the tech sector has been out taking space, which has reduced choice for tenants activating searches in 2018. “