Business uncertainty has been high since the referendum vote in 2016 with clarity on trade, travel, finance, or even security, opaque at best. The UK has braced itself for leaving the EU without a deal on no less than three occasions. Nevertheless, businesses in the UK have been unable to sit idly by until the political impasse is resolved and have progressed key real estate decisions.
So much so, here at DeVono Cresa we carried out research showing that leasing activity in London over the past three years has been above the long-term annual average. Yet, as the country goes to the polls, and the new Brexit deadline of 31st January 2020 gets closer, we have identified a number of possible impacts on the workplace UK business sectors may face, which in turn could impact demand for 2020 office space.
The greatest asset to all business sectors is its workforce. The UK currently benefits from free movement of citizens with other EU countries. It is almost expected that this policy will change in the event of both the government’s agreed deal and a no-deal scenario. Businesses from all sectors with EU workers in the UK, and equally UK workers in EU countries are cognisant of any permits or visas workers may need. Uncertainty surrounding Brexit has impacted the inward migration to the UK, especially from the EU. This will no doubt continue to impact business until a new process is put in place.
In a recent blog, we analysed data from the Office for National Statistics (ONS) on business creation and growth and which sectors fared best. We have taken the list of top sectors and assessed government advice and data sources to identify possible ‘what-if’s’ should the UK exit the EU without a deal.
Technology sector: a driving force of the UK
The technology sector has become a thriving industry for the UK over the past decade. Whilst the term technology covers a whole range of firms from biotech through to fintech, the sector is a major contributor of both employment and revenue for the country. Technology is driving change in the workplace, not just for its own businesses, but that of others by introducing new, software, hardware and working practices.
The technology sector seeks to attract talent, especially younger resources, from a global labour pool. If restrictions are out in place then businesses may struggle to recruit, which in turn could hamper growth plans. From a competition standpoint, other geographies could become easier to access and operate in.
Government advice currently points to programmes that require cross-border collaboration with EU partners. If the UK leaves with a deal, the financing of UK organisations which partake in EU programmes will continue. This means that all Creative Europe, Europe for Citizens and CEF (T) projects will continue as now and be fully funded under the current 2014-2020 Multi-annual Financial Framework.
However, as a result of Brexit, many cross-border programmes which require collaboration will see delivery complicated. The UK is yet to create a framework facilitating continued participation in these programmes – something that is vital to sustaining the sector’s continued upward growth trajectory. Alternative plans are underway, however, to enable organisations to complete and deliver across these projects.
If the UK exits the EU without a deal, and should the EU cease to fund UK organisations after Brexit, the current Conservative government has created a funding guarantee for participating organisations.
Projects will no longer be able to continue in their existing form in the event of a no-deal Brexit. Instead, they will be assessed as to whether they can be modified without departing too significantly from the initial objectives set.
A no-deal Brexit will affect many cases in the UK, with UK beneficiary companies no longer able to receive funding. Participants will face termination of their existing programmes if they no longer meet eligibility requirements.
Taking care of your health (sector) and minds
The health and education sectors, whether public or private, are two of the UK’s strongest industries. Businesses in these sectors have a strong survival rate but are faced with a myriad of Brexit related factors which could cause pressure, not least of all regarding regulations, guidelines and investment.
Already a direct consequence of the UK’s decision to leave the EU, the European Medicines Agency has moved to Amsterdam, vacating its recently acquired space in London’s Canary Wharf district. This has been the most high-profile Brexit exit to date. Whilst the UK will be required to establish its own regulatory body, the loss of such an important EU organisation was a significant tenant move.
In the event of no-deal, healthcare businesses will have to ensure that they are continuing to work to the existing quality and safety standards, following guidelines set out by the Government’s Statutory Instruments. Similarly, import and export of human tissues, cells and organs will still require licencing.
Issues may arise regarding the need for physical storage space, medicines that are arriving from the EU that require storage and refrigeration could be impacted by lengthy customs queues at the ports and airports. Equally, this is the same for products leaving the UK – which puts pressure on logistics partners and asks the question as to whether physical networks are robust and secure enough, profoundly important if stockpiling of essentials takes place.
More broadly, access to EU professionals from a research perspective through to front-line delivery has been a hotly debated topic. Whether resident or prospective, it looks likely in the event of a deal and no-deal scenario that freedom of movement of EU citizens will be curtailed and subject to a new visa programme. This will affect all business sectors including education, with right to work checks conducted on all applicants.
Schools and higher education facilities have been advised to prepare using government guidelines. The current government (as of November 2019) is dedicated to ensuring that funding will be guaranteed for successful UK bids to the EU Horizon 2020 programme. School places will continue to be offered to citizens of the EU, Iceland, Liechtenstein, Norway or Switzerland. This should offer peace of mind to EU/EEA citizens and their families already in the UK.
DeVono Cresa research has shown that these two sectors have been prominent in leasing office space across London and other UK cities in recent years. The success of these firms and institutions is key to the continued growth of the academic-commercial ecosystems that have already been established.
Movement of goods
The UK is an island nation which has a dependency on goods flowing to and from the EU. For forty years, UK borders with the EU have been relaxed both for people and goods. This is expected to change post-Brexit. In the short-term, it has been suggested that disruption will ensue. Increased checks and verification are expected to impact crossing times, affecting the delivery of time-sensitive products like food, flowers, or even medicines. The government is advising that all logistics providers and transportation firms register for an EORI (Economic Operators Registration and Identification number) to help facilitate movement. Large-scale disruption of the movement of goods could increase the requirement for storage and industrial space both sides of the channel; something that most affected firms will have thought about already.
The financial services sector is the largest employment sector and office tenant in central London. A leading hub both domestic and globally for the industry. Likewise, cities such as Birmingham, Leeds and Manchester have a strong and established financial sector. If the UK leaves the EU without a deal, the UK will no longer be part of the EU’s single market for financial services or the EU’s joint supervisory framework for financial services firms and markets. This will have important consequences for UK and EEA firms engaged in cross-border activity between the UK and EEA countries that currently leverage EU free market access and movement.
Firms based in the UK will lose access to the EU ‘Passport’. The EU ‘Passport’ gives firms authorised in their home state the right to conduct business in the EEA based on their home state authorisations. Soon after the referendum in 2016, a number of the larger firms acquired office space in other EU countries to continue trade. The establishment of these offices has not resulted in a wholescale exit of businesses from London. The financial and insurance sector in London continues to drive leasing activity in Q1-Q3 in 2019 (24%).
The ability for firms to trade cross-border will change as a result with UK authorities unable to address all consequences of the loss of the EU ‘Passport’ on their own. The Government and financial services regulators have taken steps to minimise disruption to firms operating in the UK if the UK leaves without a deal. It has put in place legislation, via the EU Withdrawal Act, to ensure that, if the UK leaves the EU without a deal, there is a functioning legal and regulatory regime for financial services. As far as possible, the same rules that apply pre-Brexit will apply immediately post-Brexit.
Brexit has caused uncertainty amongst businesses and the general workforce alike for more than three years. Whilst the government ramped up its no-deal Brexit advice ahead of the previous deadline, the will of Parliament is to achieve a deal. Until a deal has been ratified both in the UK and EU, uncertainty will remain high. What time has shown us so far is that expectations of post-Brexit UK differ from one-person-to-the-next, thus, amplifying the difficulty of planning for such an event. Regardless of this, workplace decisions – both existing and future – will need to be made over the coming years, maybe months. We believe that working in the right space at the right time can be a fine balancing act. With the right support and advice, it does not have to be tricky and will prove invaluable to achieving long-term business goals.