MIPIMWorld: How has foreign investment in the UK been impacted by the Brexit vote?
Courtney Fingar: The UK’s decision to leave the EU has created significant uncertainty within the corporate world, and if there is one thing investors dislike it’s uncertainty.
The UK remains the top-ranking destination in Europe for FDI by a long measure, capturing 22% of all greenfield investment into Europe in 2016, according to our database fDi Markets, which tracks cross border greenfield investment (defined for our purposes as new physical presence or facility in the UK or expansion of existing facility by a foreign company). But the announcement of the EU referendum in early 2016 triggered a year of doubt, with our figures showing greenfield FDI projects into the UK declining 19% and estimated capital investment dropping by as much as 38% in the year following the vote.
MIPIMWorld: What have been the strongest sources of FDI since the referendum – and where has investment dropped off?
Courtney Fingar: Perhaps not surprisingly given the close ties between the two countries, investment from the US held mostly stable with only a slight decline in the number of FDI projects in the UK between July 2016 and June 2017 compared with the same period of 2016 and an increase in capex from $8.6bn to $8.9bn. The natural affinity that US companies have for the UK due to language and cultural similarities as well as familiarity might help offset Brexit-related turbulence in the eyes of American investors.
But some key European investors are pulling back, with FDI from France, Germany, Ireland, Italy and Sweden declining in project numbers and value. While Chinese FDI is buoyant (with a small decline in project numbers but a rise in capex), investment from India – statistically a more significant greenfield investor into the UK in recent years even though it receives less hype than Chinese investment – has halved in the past year.
MIPIMWorld: Which sectors of the economy do you think will be worst hit by Brexit-related uncertainty – and which might benefit?
Courtney Fingar: Most of the UK’s key FDI sectors have been hit as companies hedge their bets on what a post-Brexit UK trade, tax and regulatory scenario will be.
Investors in the business and financial services sectors are understandably stalling investment and looking towards EU member countries. Banking is one of the main industries considering relocation from the UK, with Ireland and Germany poised to receive a portion of the investment. The UK’s tech supremacy is also under threat, with investment in software and IT as well as the communications sectors in the UK declining since the referendum, with access to talent and movement of people being important considerations for the tech community.
Manufacturing-intensive sectors saw a decline in 2016 as Brexit worries first began to bite, but the latest figures show that FDI in manufacturing projects has risen in the year since the referendum. Projects increased from 87 to 108 from July 2015-June 2016 to July 2016-June 2017, while capex increased from $2.7bn to $3.3bn. Access to the European market and the potential for trade tariffs remains a huge concern for manufacturers, and production facilities geared towards export will likely go to the Continent in future; however, those aimed towards serving the UK consumer market may find it necessary to produce in-country instead of serving the market from European bases.
MIPIMWorld: How do you anticipate the appetite for investment in the UK to change over the rest of this year and into 2018?
Courtney Fingar: FDI into the UK looks set to continue to be volatile given the ongoing uncertainty and slow process of Brexit.
There will be variance in how different foreign companies choose to react to Brexit. Some will be incentivised to increase their footholds in the UK, if this is seen a solid home base or a crucial market for them. Others will spread their odds by putting one foot in the UK and one in an EU country. And some others might give up on the UK entirely. How big of a share each of those groups accounts for in the end will shape the UK’s future as an FDI destination.
MIPIMWorld: In terms of real estate, which sectors (eg: offices, industrial, retail, residential) do you expect to be worst hit by any fall in investment?
Courtney Fingar: Any decrease in inbound foreign investment is bound to dent demand for office space and industrial facilities, at least by some degree. Retail will be dependent on consumer demand and how well that holds up as the larger economic effects of Brexit start to bite. Residential, in my view, will be least directly impacted by FDI levels. Its fate rests much more on the extent to which the UK’s population — especially that of London — continues to grow at the rapid rate it had been and therefore whether demand continues to outstrip supply. Changes to immigration policies post-Brexit will have an impact, but the scale of which depends entirely on what those policies will be. All in all, Brexit poses a lot more questions than answers for investors as well as consumers and residents of the UK.
Courtney is on the panel of Future Cities which will take place on the first day of MIPIM UK 2017 – 18 October. Within this talk, the panel will discuss what the city of the future needs; how can regeneration and placemaking ensure that a city can drive dramatic economic growth and successfully accommodate constantly changing demographics? See panel session here
Photo credit: Galeria zdjęć – Trojmiasto