Brexit Two Years On - What's been the Impact? Lees Associates
What is the impact of Brexit on the Luxury Property and Construction Industry? It has been nearly two years since the UK officially left the EU at the end of its transition period and we can probably all agree that it has been a challenging time for all of us. But what has been the true impact if Brexit?
Introduction
The UK luxury property market and construction industry, despite its resilience has shown that it is not immune from external factor’s such as Brexit. However, it is also not immune to the global pandemic, Russia’s war in Ukraine or domestic political unrest. The luxury property industry’s ability to recover however, faster than the rest of the property industry shows its strength. There is no doubt that uncertainties surrounding the UK’s departure from the European Union has led to a slowdown in the UK construction industry and the effects have been felt even at the super-prime level.
The shortage of labour
One of the significant impacts of Brexit is labour shortages. With the freedom of movement severely diminished between the UK and the EU, finding the highly skilled labour required for super-prime property projects has often proved impossible. Experts highlight that the industry needs to attract more people into the industry from all walks of life and to all trades and disciplines. More EU citizens have returned to their home countries and they are not being replaced by new arrivals due to the need for visas and sponsorship making the UK a less attractive country to come and work in. This shortage of workers has led to delays in projects and increased labour costs, making it difficult for construction firms to remain competitive.
Difficulties in the supply chain
The UK leaving the EU has also had an impact on supply chains, with the increased difficulty in sourcing raw materials such as wood and stone, specialist and artisan goods and equipment needed for super-prime projects. There is no doubt that uncertainty in prices has had an impact on project budgets, causing delays and in some cases cancellations of projects. The supply chain has of course also been disrupted by the war in Ukraine, where the luxury construction industry saw instances of bulk buying materials. Experts have said that a free trade deal with Europe is desperately needed. There is no benefit of tariffs, additional paperwork and red tape. Many have suggested that the UK needs to look internally to manufacture supplies for luxury homes, however many aspects including specialist lighting and audio visual technology, will always be reliant on long-established mammoth factories in Europe and the Far East.
General Uncertainty in the Luxury Property Industry
The super-prime property market is not recession proof, but can weather the storms of major economic events such as Brexit. Interestingly Prime Minister Liz Truss’ disastrous mini budget, has probably had one of the most lasting impacts! Rising interest rates makes borrowing more expensive, but in the prime property market where clients are extremely affluent, people tend to borrow less. Putin’s war in Ukraine, has led to a massive world-wide energy crisis, leading to massive impact on cost-price inflation. We are seeing lenders naturally being much more cautious, especially with regard to development finance in the knowledge that delays are causing projects to last longer, and a lot can happen in that time.
Are there any opportunities?
Despite the challenges, the luxury property industry can often rise above the global difficulties. There is a growing trend to source more locally and more sustainably. London’s appeal to both domestic and foreign UNWIs is unlikely to falter, and the prime property market will continue to remain strong. Further, there is fantastic talent within the UK in terms of labour and experts within the luxury property sector are investing heavily in apprentice schemes and talent coping at school level. This will not only address the labour shortage, but it will build a more sustainable workforce. Finally, despite the current economic problems, the UK government has pledged to invest in construction to boost the economy and such investment could create new opportunities for construction firms and offset some of the negative impacts of Brexit.
Conclusion
There is no doubt that Brexit has had an impact on the luxury property and construction industry. However, other factors such as the pandemic, the war in Ukraine and domestic political and economic unrest, have also been massive factors. Brexit has of course created a lot of uncertainty and disruption, especially in respect of access to labour and materials. However, it has potentially forced the industry to be more innovative and competitive. We now need to adapt to the changing market, be more agile and potentially find new ways of doing business in the post-Brexit era. Thankfully we are an industry that supports one another and with the help of communities such as The Luxury Property Forum, we will collaborate and come our stronger.
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