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  • The Effect of Brexit on Design and Build

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  • As the UK counts down to our exit from the European Union, businesses are preparing for the possible implications on their industry.

    Design and build firms have the potential to be affected on both the supply and demand sides of operations, as prospects face business uncertainty and construction is intertwined with the EU supply.

     

  • Property market

    Since the Referendum, we have experienced a weaker pound and a dramatic reduction in the value of investment and property funds, leaving investors unable to access around £12bn of their investments.

    In the short term, UK enterprises are likely to continue putting off investment whilst they are unsure of tax and tariffs after Brexit. We are hearing of an increasing number of businesses withdrawing UK operations due to business uncertainty and moving assets to Europe as part of Brexit contingency plans. Consequently, we are likely to see more empty office space while the market adjusts.

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    We are also seeing global investors taking their money out of the UK property market and freeing up investment properties that are currently sitting empty. Counteractively, some investors from the USA, Asia and the Middle-East are taking advantage of the weaker pound and cash in the UK property market, which has become 10-20% cheaper for them.

    It is little wonder investors are shaken up, when the prospect of a no-deal Brexit foreshadows a drop of 5-9% in commercial real estate values, according to Capital Economics. However, firms who do not principally trade in the European markets can take advantage of falling property prices and it may be a financially smart move to start looking at new office space in the near future.

  • Construction

    Construction costs are likely to rise in the wake of Brexit due to an exacerbated skills shortage and the implications on imports and exports. UK construction depends largely on foreign migrant labour for both skilled and non-skilled roles, with London reliant on the EU for 28% of building workers. The current skills shortage is the result of an ageing workforce and the return of economic growth, with fewer young people entering the industry. However, non-UK nationals in the industry are generally younger, with 29% less than native UK workers aged over 45. Our EU membership has guaranteed free movement and, if a limit is placed on immigration particularly for skilled workers, project costs will rise where supply can’t meet demand.

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  • The same applies to the import and export of goods, removing duties and restrictions. As 64% of building materials are sourced from the EU, we could experience a supply shortage and rising construction costs if duties or limits on quantities are enforced. Delays in the procurement of furniture and materials should be factored into proposals and project timelines in the immediate aftermath of the exit date. However, after severing ties with the EU the UK may be able to negotiate and develop its own trade agreements with other importing giants like the USA and China.

    Moving forward

    It is worth considering however, that repercussions are likely to be short term as we adjust to the new economic landscape. A great deal of uncertainty has been hanging over UK businesses but post-Brexit, whether we leave the EU without a deal in place or the UK must adjust to new trade agreements, things will settle down in the long term and we can expect demand to bounce back once the Brexit fog clears.

     

    Concerned how Brexit could affect your plans for a new office?

    Get in touch to discuss your options.

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