While most executives reported a “business as usual” approach in the month’s following June’s Brexit decision, there has been near constant speculation about how it will affect real estate markets and also, from day one onwards, speculation about whether companies would abandon London locations in favor of other European cities.
According to a recent data, London office rental rates are expected to slow over the medium term but the outlook is less gloomy than it has been (tiered paywall). What will really cause rents to plummet will be if the Brexit negotiations see London-based banks lose their “passporting” provisions that allow them to offer a whole host of valuable services throughout the European Economic Area, while based in – and regulated by – UK legislators.
Having to be outside the UK to serve European customers would make London a far less attractive location for the world’s financial firms, who take up so much expensive office space in the city.
So, as ever, the only constant surrounding Brexit is uncertainty. While the UK has two years to officially exit the European Union, heads of real estate at the world’s companies should act now to help the business can take advantage of portfolio opportunities and avoid last-minute decisions.
Heads of real estate should use “what-if” analyses and scenario planning to prepare for Brexit-induced portfolio adjustments, so they are ready when the outcome of the exit negotiations are clearer, and markets and companies start to respond.
The sequence below will help you get involved in these top-table Brexit conversations. As noted in step 3, the key to gaining early involvement in strategic conversations is being able to teach your stakeholders something. Steps 1 and 2 will help you generate this insight as you clearly lay out where the potential vulnerabilities are in your portfolio and walk stakeholders through scenario plans that demonstrate how CRE will react, whatever the outcome of Brexit.
Assess your portfolio’s preparedness for Brexit with a portfolio inventory: Before you can begin scenario planning, you need to identify the most vulnerable parts of your portfolio. Use this set of questions to identify any potential problem areas.
Build scenario plans to hedge uncertainty: Scenario planning prepares Real Estate to help the business act faster when the time is right. Use the framework below (click the image to read the entire list) to prepare the real estate strategy in response to all post-Brexit scenarios.
Get involved in post-Brexit strategy conversations: Surprisingly, data show that real estate concerns are low on the list for most executives (see chart 2 in this post).
Senior managers may see location-related decisions as a matter for the corporate strategy team rather than Real Estate or view Real Estate as the function to implement, rather than inform, such a significant location decision. As a result, real estate teams need to use insight that will help people see the situation in a new light, and that will then give them the credibility required to get involved in business planning meetings.
This will require understanding the company’s biggest challenges post-Brexit and showing managers how and where Real Estate can help. While on the surface business partners aren’t as concerned with Real Estate post-Brexit, their top talent/workforce concern has a major real estate implication (see chart 1): 37% are most concerned about the relocation of staff out of the UK.
While line managers may not connect the dots to understand how Real Estate can assist with this challenge, it is up to the function to demonstrate how to prepare for and help with these relocations.
Chart 1: The implications of Brexit What do you think the biggest Brexit talent/workforce implications on your organization are likely to be?; n=824 Source: CEB analysis