Has Brexit impacted the property market or lost its crown to Covid-19?

Simon Toseland, a Director of Prop-Search

As the UK embraces its future outside the EU, what impact has Brexit had on UK property and what impact is it likely to have as we move forward in 2021, asks commercial property consultants Prop-Search

Whilst the UK left the EU on 31 January 2020, under the agreement on the UK’s withdrawal it continued in most respects to be treated as if it were still part of the EU until 31 December 2020. Now that this transition period has ended, the full effects of this change in UK law and regulation apply.

The key impact of Brexit, both before and after the UK’s withdrawal from the EU – and the end of the transition period – has been and will continue to be commercial rather than legal. The laws underpinning property ownership, letting and conveyancing in England, Wales and Scotland are largely domestic in origin and so have been relatively unaffected by Brexit.

Simon Toseland, a Director of Prop-Search, said: “Commercially, however, the UK property market is not insulated from Europe – or indeed the rest of the world – and is susceptible to political changes. It does not generally respond well to uncertainty. The 2016 EU referendum result and subsequent political wrangling did have an impact on confidence within the UK property market although some sectors, notably logistics, showed great resilience and continued to perform well.”

However, concerns around the impact of Brexit on the UK property market have now largely been subsumed by the impact of the COVID-19 pandemic. Both have been catalysts for change, accelerating trends, such as the rise in online shopping and home-working. The key difference is that COVID-19 is a global rather than domestic issue, meaning all property markets around the world face similar challenges around the repurposing, rethinking and redesign of space.

While there have been some exits from the UK market due to Brexit, it did not trigger the exodus that many had predicted. The UK’s departure from the EU will continue to be one of the factors being taken into account in commercial decisions to take on, retain or dispose of premises but it is unlikely to be the main driving force. Instead, demographic and behavioural trends, such as internet shopping and flexible working, will have a much more pronounced impact, particularly in areas such as logistics and retail. COVID-19 has fuelled these trends but has also encouraged a degree of ‘on-shoring’, especially in connection with supply chains.

In 2019, there was one significant Brexit legal development relating to occupiers. In the case of Canary Wharf Limited v. European Medicines Agency, the High Court ruled that the EMA’s lease of premises in London would not be frustrated – i.e. brought to an early end – by Brexit and the EMA’s consequential relocation to Amsterdam. This provided comfort to the market that Brexit could not easily, if at all, be used by occupiers to terminate their lease arrangements.

Simon Toseland adds: “Whilst this ruling by the High Court may see an end to Brexit lease frustration arguments, we could see them reappear in the courts in 2021, but this time in relation to the impact on occupiers of Government restrictions to control the spread of COVID-19.”

Brexit has had a limited legal impact on commercial property in the UK. Commercially, its effects have now largely been subsumed by the impact of the global COVID-19 pandemic, placing the UK in a similar position to other markets around the world. As we move through 2021, the focus will be on how the UK market adjusts to the challenges presented by COVID-19 and, as it does, identifying when and where new opportunities are likely to arise.