The post-Brexit world faces a lot of uncertainty, but one thing is for certain: London will have a lot of available real estate soon. Once considered the hub for many international companies doing business in Europe, London and the rest of the UK face the very real danger of companies moving overseas in the wake of Brexit to avoid the sweeping changing regulations.
One of the reasons London and the U.K. in general was such a draw for international businesses was not only its location but also its participation in the European Union. As a member of the EU, the UK had waived immigration and travel between other EU countries, as well as open trade agreements. With those features gone as the UK leaves the EU, plus the unknown economic consequences of such an unprecedented move, many businesses are moving their business as they see no draw to stay in the UK.
Companies on the Move
Of CEOs of major, UK-based companies, 76% say they are considering relocating their offices in response to the uncertainty around Brexit. More than half of those CEOs believe the UK’s ability to do business will be disrupted after the Brexit officially occurs. These companies fall into all sorts of industries and include mobile giant Vodafone, which warned it could move its headquarters out of the UK if Brexit made it more difficult to move people, capital, and goods, which is one of the main reasons its headquarters were established there in the first place.
Airline easyJet, which was founded and is headquartered in Luton, will remain at its current headquarters, but that doesn’t mean the company won’t also look to expand outside the UK. easyJet has applied for an air operating certificate in another country in Europe; current aviation rules state that airlines can operate freely within the EU as long as they have a certificate from a member country. With the UK leaving, easyJet had to turn elsewhere to keep up their extensive travel itineraries.
There have also been a number of collapsed deals in the wake of Brexit. Richard Branson and his Virgin Group cancelled a deal worth 3,000 jobs. Branson also said Brexit had stopped him from buying a UK company because of the ongoing stability in the area that he expects to continue for the next few years. Siemens, which is currently manufacturing wind turbines in the UK, put the project on hold after Brexit, affecting more than 1,000 people who work at the plant.
Financial Services Leaving
One of the biggest industries to consider leaving the UK is financial services and banking. Financial experts fear that EU officials will create trade restrictions around London in an effort to weaken the hub during Brexit negotiations. Banks operating in the UK currently have pass-porting rights that allow them, as well as insurers and fund managers, to sell services seamlessly in any other country in the EU without requiring a local license. Losing these rights would be a huge blow to financial services companies and severely limit their reach. As a result, companies are fleeing within the next few months. Larger banks and institutions are expected to follow suit and leave during the first quarter of 2017.
“Banking is probably more affected by Brexit than any other sector of the economy, both in the degree of impact and the scale of the implications,” said Anthony Browne, head of the British Bankers’ Association. “For banks, Brexit does not simply mean additional tariffs being imposed on trade, as is likely to be the case with other sectors. It is about whether banks have the legal right to provide services.”
In order to mitigate some of the unknown elements, British banks have asked for transition arrangements to be put in place for the next few years. However, with no response and likely years of exit negotiations between the UK and the EU ahead, many companies are taking matters into their own hands and finding a new place to operate.
Companies moving out the UK will have immediate and more long-term effects on the local economy. First is the obvious loss of jobs as the positions move to other countries. There’s also the loss of a strong business network if more companies leave; after all, many of these companies rely on and compete with each other, which makes it convenient for them all to be headquartered in a relatively small space. With some companies leaving, others might follow suit.
With a large number of banks and financial institutions leaving, other companies could feel the pressure without support of banks. There’s also the issue of potential regulations that would limit what UK-based businesses could do, which could be a further blow to companies that stick around.
Experts are fairly certain that most industries will be able to work through companies leaving the UK, but time will tell if the Brexit transition is smooth and if that real estate soon gets filled with new companies.