Date
17 October 2018
There are many good reasons why high-net-worth individuals and institutions continue to flock to London despite the uncertainty of Brexit. Photo: Savills
There are many good reasons why high-net-worth individuals and institutions continue to flock to London despite the uncertainty of Brexit. Photo: Savills

Why London will remain a big draw despite Brexit uncertainty

Nobody knows exactly how things will work for Britain in the long run. Further negotiations regarding future relations between the UK and the EU will begin soon, and this hopefully will give the market some certainty.

If all goes to plan, a deal could then be approved by both parties in time for March 29, 2019. Early last month, Theresa May delivered a speech outlining the government’s position on the UK and EU’s future ties.

Political instability usually leads to confusion and doubt amongst the majority of investors. While institutions and high-net-worth individuals (HNWI) have been pouring into London over the last few years, the mass market has been mainly observing from the sidelines. Though still very interested in what’s going on, in reality, most individuals are waiting to see what will happen, if anything, with Brexit.

Will the banks all leave? Will the recent influx of startups, multinational Tech firms and VC’s dry up or will they perhaps up sticks to Dublin or to Frankfurt? Is the pound going to continue to go lower? And finally, will house prices come crashing down in London?

The answer to all these questions is more than likely will be No.

The pound started to recover months ago. Many respected commentators predict the recovery will continue or even speed up with rate rises in the US. As further example, there is 4.5 times the amount of VC in London than there is in Paris and over 3 times more than in Frankfurt. Apple and Google have both invested over 1 billion pounds into new super offices in prime London. The banks aren’t leaving, the reality is there is nowhere for them to go. Frankfurt doesn’t have the infrastructure and English is not the first language.

While Dublin is a fantastic city to visit, with a lot to offer smaller firms, the reality here is that the capacity to house big banks is very limited. The tallest office tower in the entire city is 14 stories. This is why the outcome of Brexit negotiations, whichever side “wins”, in my opinion, is not a deciding factor on the future of the city of London.

A question that we often hear is: “why are HNWI and institutions buying so much in London despite the uncertainty of Brexit?”

You’d have to ask Eric Schmitt and Tim Cook exactly why they choose London. But according to people close to the deals, the low pound had little to do with it. It’s the talent pool. People want to work in London because they want to live in London. Why? because it’s a wonderful city and around every corner there is history, culture, excitement, drama and fantastic places to eat! That means companies need to be based there in order to attract the best possible talent. Technology, finance, fintech will remain and will be ever present in London and that’s because it is where people want to be.

Along with desirability, the capital has some of the best schools and universities in the world for both domestic and overseas students to get a taste of London life, while studying. There is over one billion population in China and over one billion people in India — countries with ever-expanding middle classes where many parents have a strong desire to educate their children in London or in the rest of UK. Many underestimate the amount of money still to come out of these ever-emerging markets.

The UK also has a transparent legal system that is globally recognized and trusted by institutions as well as individuals all over the world. While it has seen a change in stamp duty recently (which only negatively affected the super-prime segment), London is still one of the most tax efficient places to invest in real estate.

It’s a very interesting discussion that could go on for weeks. What I’m sure of is that, if you look at London like the big institutions do “on a mid- to long-term basis”, you will see fantastic returns from the capital of the UK.

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RC

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