

UK financial markets were in shock this morning after the UK’s 52 to 48 percent vote in favour of leaving the European Union.
A rally in the immediate run-up to the vote was reversed, with the FTSE and sterling falling sharply, and swap and gilt rates down.
The chief executive of Hermes Investment Management, Saker Nusseibeh, said: “We are watching market moves very carefully to assess the degree of contagion, if any, to global markets. Besides a sharp sell-off in risk and in sterling, as well as a recession in the UK (which is expected) our fear is that this may trigger political uncertainty within Europe which in turn may lead to a severe global market correction”.
The investment manager’s chief economist, Neil Williams, continued: “Eyebrows are being raised across the City of London. The UK’s vote to leave provides a massive ‘curve ball’ for financial markets, which now need time to assess the policy path that a likely, new political line-up will eventually choose to go down. All of this will take time.
“Equities and the pound may remain vulnerable given the likely hit to UK growth, and risk now of weaker ties with our main trading partner, FDI foregone, and a diluted relationship with the US and other third parties that use the UK to access the Single Market.”
He added that the UK economy will “of course ‘survive’, given its entrepreneurial flair, increasing focus on non-EU trade, and likely policy accommodation by the Bank of England and UK Treasury. However, getting to the next stage looks a long, drawn-out ‘can of worms’, leaving considerable uncertainty for UK assets and markets. The extent of this damage now rests on the manner of the exit.”
In the real estate sector, business leaders are also braced for uncertainty. Cushman & Wakefield’s EMEA chief executive, John Forrester said that property had followed the EU referendum at least as closely as any other industry and had already been impacted by the speculation in the run up to the vote.
“While the decision of the UK electorate is now confirmed, a period of further uncertainty is unavoidable as businesses, the financial markets and the political establishment in the UK, Europe and globally come to terms with what this means,” he said.
European real estate analysts at JP Morgan Cazenove said: “As businesses withdraw and decision making is put on hold, a contraction in economic activity could have a demand shock on real estate. We have just 1% job growth in our London office models and this is likely to be reduced.”
Jones Lang Lasalle’s EMEA CEO, Guy Grainger, expressed the hope that the exit will be “well-managed” so that the “period of pronounced uncertainty we’re now in” could be “largely confined to the next two years.”
He said the event “is a trigger for many investors and occupiers to make adjustment to their real estate strategy. Some decisions may continue to be put on hold or reassessed entirely”.
He continued: “In the short term we may see a weakening in occupier demand as businesses to more time to consider investment decisions. The impact on rents may be limited by tight supply, but activity will be adversely hit while initial uncertainty about direction and timing continues. Investor sentiment may also remain subdued in the short to medium term, although a drop in Sterling may provide a moment in time for some opportunistic international investors.”
While the initial correction may be most severe, he said this should be followed by an upturn as opportunities re-emerge in UK core markets and benefits of weak sterling are recognised. “Sentiment and relative pricing will be key.”
Many banks and institutions have been saying little, instead putting out holding statements, designed to reassure their customers and clients. Barclays, one of the three largest UK bank lenders to the property market, stressed that the majority of its markets and banking business is done in the UK with about 80% of headcount and income generated in those two home markets.
“We are still able to service our European clients from London and New York effectively with minimal impact” a spokesman told Real Estate Capital.
Barclays’s share price fell 30 percent this morning, with Lloyds and RBS also both hit.
A spokesperson at Legal & General Investment Management Real Assets said: “We undertook extensive contingency planning ahead of the vote and will be monitoring data and collating the knowledge gained across the breadth of LGIM’s Real Assets platform to track the market and determine the most effective responses, if and as required. We are well prepared and remain confident of the underlying fundamentals behind the investments we manage.”
Peter Cosmetatos, CREFC Europe’s chief executive, said: “This is plainly a momentous change, and not one a London-based membership body with “Europe” in its name can ignore. Looking through the inevitable near-term volatility and uncertainty, we will discuss the implications of the UK vote for our industry with our members, as they too take stock. Our goal will remain to serve them.”
Melanie Leech, chief executive of the British Property Federation, said: “The negotiation process is going to be long and complicated, and there will be many unknowns ahead. Our priority is that the government maintains focus on existing national priorities such as housing and that it makes decisions on major infrastructure projects, such as airport capacity and maintaining momentum around HS2, swiftly.”