U.K. Real Estate Must Face Up To These Four Key Global Risks

Terrorism, cyberattacks and protectionism are upsetting the status quo across the globe and affecting real estate to a degree not seen in the past.

In the U.K., there is also the complexity of negotiating Brexit, which will have a seismic impact on the property sector.

Ahead of a keynote address at October's MIPIM U.K. conference, Control Risk Senior Partner Charles Hecker outlined what U.K. real estate needs to know about these four key influencing factors.

Terrorism will become more atomised

Hecker argued that although the victory over the Islamic State in Mosul was important, terrorism today is global and diffuse. Developers need to understand the new nature of global terrorism when developing a scheme.

The terrorist attacks in Brussels, Paris, Manchester and London were undertaken by domestic individuals, and with I.S. no longer growing in the Middle East, this is likely to increase.

Hecker does not want to be alarmist — the U.K. is still rated as a low threat level on a global scale. But incidents like those seen this year could easily occur again.

“We think we will see more attacks like in Manchester and London,” he said. “That has a big impact on sectors like real estate who need to think about security and resilience, particularly since the world is now so concentrated in urban centres.

“Developers of major multi-building schemes need to understand how to build security and resilience into their schemes. They need to understand what the threat is, how it is evolving, why their scheme might be targeted and how security forces will respond to any threat.”

Don’t be fooled — it is going to be a hard Brexit

“Control Risk continues to forecast a hard Brexit, and that means leaving the Single Market and Customs Union in March 2019,” Hecker said. 

He argued that although Theresa May’s position as leader of the Conservative party was weakened by the loss of a parliamentary majority, any backsliding on the terms of Brexit would trigger a leadership challenge.

That would lead to a period of “significant uncertainty” for the U.K., he said, but from a property investment standpoint that would not be catastrophic.

“The question becomes how the U.K. is viewed as an investment destination,” he said. “There will always be investors who find that kind of uncertainty attractive. When Sterling softened there was concern but investors were willing to step in and London has remained popular.

“There are other parts of the world that have their own uncertainty and in geopolitical terms everything is relative," he said, pointing out that while Brexit is a seismic shock for the U.K., parts of the world like the Middle East face far more volatile political situations.

The U.K. is not the only country becoming more protectionist

Although a hard Brexit will not be cataclysmic in Hecker’s view, it will be more difficult to agree to trade deals in a world that is becoming far more protectionist. That could have a big impact on sectors like logistics and retail, with U.K. retailers being big importers of goods and materials.

The U.K.’s desire to exit Europe is part of a wider rise of protectionism on a global scale, as demonstrated by the desire of the U.S. to examine the terms of NAFTA and the collapse of the Trans Pacific Partnership.

“You are seeing voters becoming more in favour of protectionist policies that increase tariffs and quotas. When President Xi of China is the biggest advocate of global free trade then you know things have changed,” he said.

“This is the environment in which the U.K. will be trying to negotiate new deals, and it will be difficult. London is an important city and the U.K. is a top five global economy but to a certain degree the U.K. was hedged against these global trends as part of the E.U. The old deals were negotiated at a time of growing globalisation and when the U.K. was part of the E.U."

Every building is partly vulnerable to a cyberattack

As well as physical threats, the real estate world needs to be cognisant of the increased threat of cyberterrorism, and not just from individual hackers — cyberattacks are now undertaken with state backing.

Hecker said that while the U.K. remained a low threat in terms of terrorist attacks, the threat level for cyberattacks rose from around a 4/10 to an 8/10 in just a few years.

“In a world where buildings and appliances and every aspect of our livelihoods are connected, then it's an important thing for the real estate sector to understand. It’s a question of when not if for companies today,” he said. “For companies in sectors like technology or financial services then their operations can be critically affected by an attack, so it's important for the people that own or manage their buildings to understand the nature of the threat.”