Why JLL supports remaining in the EU

On the 23^rd June, the UK will decide whether it wants to remain within the EU. With one of the biggest decisions of a generation on the horizon, the wave of uncertainty has seen a slowdown in UK-bound investment from external groups and has caused a delay to project initiatives and completions across the construction sector. As with every British industry, the construction sector has a variety of views on the prospect of Brexit.

Business sentiment is showing signs of being more subdued, with a prevailing mood of caution in the lead-up to the referendum on the UK’s membership of the EU on 23 June. Nevertheless JLL’s data shows continued resilience in occupier activity.  Overall Central London office take-up remained at a high level in Q1, with 2.6 million sq ft let across the City, West End and Docklands markets.  To some extent this reflects the carry-over of deals already in negotiations in late 2015. Looking ahead, we expect more subdued take-up in Q2, as evidenced by a fall in the quantum of space under offer at end Q1 to below long term average levels.

JLL believes that a vote to remain will be the best decision for the UK construction industry and here are our reasons why:

Economics
In 2014, the UK construction industry directly employed 2.1 million people and contributed £103bn to the UK economy. This equated to 6.3% of all UK jobs, and 6.5% of total economic output according to RICS. The Organization for Economic Cooperation and Development has said that Britons will pay a heavy ‘Brexit tax’ for many years if the UK leaves the EU and estimates that UK GDP would be 3% lower by 2020. Remaining in the EU will boost confidence and therefore foreign investment into the UK in relation to commercial and residential development. Indeed EU money has funded a large proportion of infrastructure and regeneration projects throughout the UK which would otherwise have been incredibly difficult, almost impossible to do without external involvement. Given the construction industry is an important driver of economic prosperity; an ‘in’ vote surely makes sense.

Labour/skills
The UK’s construction sector is close to full employment and building firms are already struggling to find the people needed for major infrastructure projects.  There has been a UK-wide increase in workloads but decreasing numbers of skilled workers available. Construction firms have been looking to other EU member states to fill the gap – especially in London.  As it stands, the outlook for the sector remains optimistic, with continued growth, albeit at a slightly slower pace. With solid levels of construction activity and a number of programmes and projects in the pipeline, demand for labour will intensify. We have a significant part of our labour force, particularly within the London market, coming from continental Europe so the free movement of labour in the European market is crucial. A vote to leave the EU would mean more pressure in terms of skills shortages with significant implications on house building.

Trade and Procurement

EU procurement is now an obligatory framework of regulations which deters bribery and corruption, and increases competition through the provision of best value for money. Being an EU member means the UK can continue bidding for EU member state public procurement contracts free from discrimination. In addition, EU trade agreements have made it easier for its members to compete across international borders. If the UK no longer has the protection of these contracts, competing with European nations on a global scale will become more bureaucratic and extremely challenging. From a JLL perspective, the benefits of remaining within the largest trading union certainly outweigh the disadvantages for our nation in the long term.

Materials
We have touched on the free movement of labour but what about the free movement of goods? Like other UK sectors, construction benefits from easy access to building materials. The Department for Business Skills and Innovation estimated that in 2010 around 64% of all building materials imported to the UK came from the EU. A Brexit could leave the UK industry facing increased material costs as well as a limited supply of materials further hampering our goal to get Britain building again.

Legislation/Health & Safety

Most current EU regulation for the construction sector has already been embedded into UK law. If the UK remains part of the EEA, it would still be subject to many of the EU’s construction industry standards many of which have made significant improvements to health and safety through the implementation of the Construction Design and Management Regulations (CDM). What would happen to the energy performance of UK homes if we vote to leave? Currently the EU is aligned to global protocols which strive to improve performance and climate change. Would the UK’s share of voice on these issues diminish as a result of no longer being a part of the ‘bigger picture’?

VAT

EU statute imposes a VAT on the consumption of goods and services, with UK receiving reduced rates relating to the built environment. These include 5% VAT on residential energy, insulation and renovations, and 0% VAT for new building construction. VAT acts as a disincentive for works to be considered, with a cut aiding local SMEs and the wider UK economy. Although a Brexit would unlikely alter the landscape of the UK VAT system in the short term; the benefits the construction sector currently receives as a result of EU membership will no longer exist. The UK will of course have the ability to choose rates without the need for EU endorsement, but the UK’s power to influence and effectively work within an arena where the EU exercises sizeable influence will be more difficult.

We believe a Brexit will increase barriers to economic activity impacting on trade, investment, infrastructure and productivity. A survey by Smith & Williamson at the beginning of 2016 found that only 15% of construction executives favoured a UK exit from the European Union which is hardly surprising given the lack of real evidence to suggest that the industry would be better off without the EU. The UK is part of the global market, and the best way for our construction industry to maintain and grow its status and reap the undeniable benefits is to surely vote to remain.

Helen Gough is head of JLL’s Buildings & Construction team