2019 will be defined by the events that have been brewing over the past couple of years, such as Brexit, a rise in nationalistic politics, unpredictable trade relations and a slowing of global economic growth. Each of which will have an impact in some way on businesses, both domestic and international, that reside in London and the UK.
Deal or No Deal?
At the point of writing this the UK was still on course to end its membership of the European Union (EU) after 45 years and enter uncharted territory on 29 March 2019. Two years of negotiations have culminated in an exit agreement between the UK Government and the 27 leaders of the EU. The only problem is that the deal does not command the support of Parliament meaning that it is not capable of implementation. All domestic political manoeuvrings will undoubtedly prolong the withdrawal process and make the exit less orderly which must in the short-term be bad for business and therefore the real estate market. The question for now is will there be an extension to the Article 50 timetable to afford more time for negotiations or will there be an exit with no-deal, either seem possible. Whilst there is a marginal consensus that leaving with no-deal should not be an option, the clock continues to tick towards exit day, a date which is (at present) legally binding.
Whilst the government have prepared white papers on various scenarios for this very eventuality, it will do little to quell levels of anxiety and mean uncertainty sky-rockets for businesses and their workforces. Economists, pundits and commentators have given up trying to predict the likely economic and trading outcome of Brexit, yet whichever route is taken, deal or no-deal, new referendum or general election, what we can expect to see is a hiatus in decision-making on property matters similar to what we saw in the immediate months following the referendum vote in 2016. Whilst some businesses may have the benefit of time to delay, others may not and will be pressed by rent reviews, breaks or expiries – or even pressure on choice of available properties. As a result, for many businesses, 2019 will be the year in which they show their mettle.
If Brexit is not enough to cast a shadow over the start of 2019, then add a drop of US protectionism to really mix things up! Since the start of the Trump presidency, the administration has sought to dismantle previous trade relationships in a bid to boost US jobs and industries. What started out with an increase in tariffs on imported steel – aimed initially at China - has quickly snowballed with increased tariffs on aluminium, auto parts, electronics and machinery with the EU, Canada and Mexico all targeted with tariffs and regulation. Whilst a recent trade deal with the latter two countries has been signed and a thawing of icy relations with China has been announced (but not yet evident), there are still voices of discontent which could easily derail any chances of trade harmony. Retaliation will see winners and losers on both sides. Inevitably this will lead to increasing costs for businesses and consumers; history shows that these kinds of tactics may well yield short-term political/economic gains but businesses and industries could well suffer in the long-run.
At least half of the G20 group of nations who make up the largest global economies are currently in the midst of trade spats, negotiations or political tit-for-tat. Whilst this makes for some interesting headlines to start the new year off with, it adds credence to some economist predictions of a global slowdown in 2019 which could ultimately lead to a recession in 2020. Slower growth in China, the impact of tax cuts, trade tensions and interest rate rises affecting growth for the US and Europe alike may lead to some industries contracting, which could force some businesses to address their real estate costs and any expansionary plans. Whilst our opening prediction for 2019 is a tad downbeat, it is clear to us that corporate uncertainty is expected to increase as a number of macro-political/economic events at the start of the year will inevitably shape real estate agendas for the rest of the year.