Frankfurt loses

U.K. Real Estate Market Shrugs Off Brexit

Many people thought the sun had set on London's commercial real estate market after the Brexit vote.
  • Why it matters

    Why it matters

    Smaller financial centers such as Frankfurt, Paris and Dublin had hoped to cash in on Brexit and had been courting international companies with European bases in London.

  • Facts


    • Real estate brokers say there is no evidence so far of the hoped-for boom in the Frankfurt commerical real estate market.
    • Big non-E.U. investors, especially Asian funds, are expected to continue to invest in London because its real estate market is so liquid.
    • Analysts warn that the whole European real estate market will suffer if Brexit talks are fractious and protracted.
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Last weekend British Prime Minister Theresa May finally set a date for Brexit talks, announcing that the formal negotiation process will start by the end of March 2017, which would put the country on course to leave the European Union by summer 2019.

One of the big questions now is whether the exodus of banks and financial services firms from London to Frankfurt, predicted by scores of real estate analysts following the June 23 referendum, will materialize.

Property owners and investors in the German financial capital, which has been trying in vain to escape from London’s shadow for decades, are hoping for a mass migration that will trigger a boom in the city’s office and residential property market.

But the early euphoria following the Brexit vote has evaporated, according to participants at the Expo Real real estate fair that started in Munich on Tuesday.

“There’s still zero evidence that the Frankfurt office market will profit from Brexit.”

Frank Pörschke, Germany chief, JLL

“There’s still zero evidence that the Frankfurt office market will profit from Brexit,” said Frank Pörschke, Germany chief for global real estate services group JLL. Europe’s banks were busy downsizing and may move their back office operations from London to other locations, he said. “French banks may favor Paris and U.S. banks Dublin, perhaps.”

Even if bank jobs are moved out of London, that will only benefit the German commercial real estate market in the long term at best, said Achim Degen, head of German business for real estate services group Colliers. So far, firms in London haven’t even made any inquiries about office space in Frankfurt. That’s not surprising given that small operations usually only start looking six months before they move, compared with 18 months for bigger relocations, said Mr. Degen.

The investment market is also yet to profit from Brexit. Mr. Degen said British investors were showing increasing interest in German real estate. “But we can only sell buildings once,” he added. There’s no lack of demand, but supply is limited.

It’s also unlikely that investors from outside the E.U. will turn their backs on London. Asian investors are among the big buyers. Richard Bloxams, head of European capital markets at JLL, said there were “enormous fund inflows” into pension funds in Asia, whose interest in European real estate remained focused on Britain, France and Germany. Their investment strategy won’t change as a result of Brexit because London was Europe’s most liquid property market, even in times of crisis, he added.

That’s why the real estate sector doesn’t expect a collapse in rents and prices in the London market, where German open-ended property funds have almost 10 percent of their funds invested.

Some purchase contracts before the British referendum had clauses added to permit new price negotiations in the event of a Brexit vote, said Mr. Pörschke of JLL. “But the good properties with long-running rental contracts in particular didn’t have major problems; the biggest impact on prices was for office buildings with rental contracts that are expiring soon,” he said.

Norway’s sovereign wealth fund seized the opportunity, snapping up a retail and office building for £124 million ($158 million; €141 million) two weeks after the vote, which according to the Financial Times amounted to a discount of almost 15 percent. The deal showed that Norway, which manages the world’s biggest state pension fund, continues to have faith in the London property market.

The current figure for real estate transactions in Britain is only slightly below pre-Brexit levels and prices have also stopped falling. A JLL survey among 67 investors in Britain showed that 73 percent of them planned to invest in new property next year.

So the damage to London’s commercial property sector is likely to be as limited as the benefit for Frankfurt. The fate of both markets is intertwined in any case, said Anne Kavanagh, global head of asset management and transactions for real estate at Axa Investment Management. She said Ms. May’s Brexit timetable was better than having no plan. “But there’s still a lot of uncertainty — and uncertainty is poison to investors.”

She added that she hoped the negotiations would be conducted in an orderly and measured fashion. “Otherwise there’s a risk that investors will avoid Europe as a whole.”


Reiner Reichel reports for Handelsblatt on real estate, closed-end fund and system models. Matthias Streit and Anne Wiktorin contributed to this article. To contact the author:

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