People are still trying to understand and sift through the consequences from the UK's decision to leave the European Union.
HOTEL MANAGEMENT spoke to various consultancies to get their takes on the fallout from Brexit:
"Even if it is effectively 'business as usual' for the UK in terms of trade and legislation until 2018, such a major change will inevitably create uncertainty in the economy and real estate markets. In the event of a well-managed exit these impacts will be largely confined to the UK," said JLL UK CEO Chris Ireland.
"In the short term we may see a weakening in occupier demand. 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. For property markets, the initial correction may be most severe but 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.
"Much will depend on the speed of negotiation, the wider political picture and whether a clear direction of travel and timetable for an EU exit is established early on."
Property market impacts:
- Occupier demand will weaken in line with economic growth and declining business sentiment. The impact on rents may be limited by tight supply, but activity will be adversely hit.
- Investor sentiment will deteriorate further subduing capital flows in the short to medium term.
- There is likely to be a negative capital value adjustment over next 2 years (estimated at up to -10% with yields moving around 50bp). London sectors remain most vulnerable to correction given current keen pricing and their multinational occupier base.
- For property markets, the initial correction may be most severe and 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.
- Much will depend on the speed of negotiation, the wider political picture and whether a clear and favourable direction of travel is established early on.
David Sproul, CEO of Deloitte UK, said: "The British public have spoken and made clear that they see the UK’s interests best-served by leaving the European Union. While the UK has opted for a future outside the EU, Britain remains a competitive, innovative and highly-skilled economy and an attractive place for business. However, as indicated by today’s market volatility we are likely to see a period of uncertainty. Businesses need to ensure they are set up to navigate the immediate risks and impacts of an exit, and have the processes and people in place to manage a period of upheaval.
“Against this backdrop of uncertainty, British businesses must continue to be proactive in finding ways to raise productivity and drive growth. The UK remains a world leader in R&D and a hub for innovation. This will help businesses capitalise on the opportunities and respond to the competitive threats created by the leave vote. They must also play an active role in setting a vision for a new, post-EU environment which is open, pro-growth and delivers prosperity and opportunity for all.”
Ian Stewart, CEO of Deloitte UK, added: "Negotiating and implementing Britain’s withdrawal from the EU is huge task. But in tackling it our nation can draw on great strengths. The UK is in the top tier of the world’s most competitive economies. We have strong institutions and a highly skilled workforce. Our economy is a magnet for inward investment and enjoys one of the lowest unemployment rates in Europe. The UK faces a period of uncertainty and of great change. But the resilience and dynamism of our economy and institutions will be huge advantages as we start to navigate a prosperous future outside the EU."
Weaker domestic hotel demand, in line with weaker GDP, consumer spend and higher unemployment can be expected should Britain vote to leave the EU. Larger falls would be expected in capital investment, including hotel investment, because of the ensuing uncertain business environment of Brexit. That would affect business travel, which is a large component of the London hotel market.
On the other hand, the sharp drop in currency exchange rates expected by Oxford Economics following a Brexit would make London more affordable to some extent. It is possible that this would be enough to offset the negative impact from weaker domestic demand. Market sentiment will play some role and could accentuate any negative effects if a vote to leave is followed by a souring of relations with the remaining EU countries. By contrast, a smooth transition and a continued perception of London as a positive place to visit and do business could accentuate positive price effects.
There is a potential positive impact for the hotel industry, due to increased affordability of the U.K. and London as a destination, derived from a weaker exchange rate. However, some uncertainty is likely to remain, not least from the potential long-run impact of lower investment, which would continue to affect business-travel decisions.
PwC is still working with its UK colleagues to develop its global point of view, but HOTEL MANAGEMENT got this from Scott Berman, PwC principal & industry leader, hospitality & leisure: "Simply, there is a lot of uncertainty today and we will be analyzing the impacts. Hospitality industry fundamentals in the UK are quite strong so we will be watching the implications closely in the months to come."