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Brexit vote and impact on US design firms

Brexit Cracked eggs

What will be the economic fallout of Britain’s decision to exit the European Union?

With the British vote to end the United Kingdom’s membership in the European Union, there are many scenarios about how the US will be affected. One concern is whether US design firms will see opportunities for expansion or suffer because of the uncertainty that has accompanied the vote. If Britain falls into recession, public finances will be under renewed pressure.

In the UK, there is great fear that the economy will crash, resulting in a deeper austerity budget. For firms in the UK, that would be disastrous since it would lead to many projects being cancelled, greater competition among firms for the remaining projects, and lower fees.

During the two-year transition period for the UK’s withdrawal from the European Union, UK citizens will be able to work throughout the EU and UK firms will be able to employ citizens from EU countries. EU procurement thresholds are expected to remain as they are, and the UK will have tariff-free access to the EU market during the withdrawal period. These measures would seem to provide a level of stability.

Impact Will be Felt

Clients are likely to put projects on hold—this includes the potential loss of international funding. There may be a negative readjustment of property values in London, but such a decline could actually attract commercial development. However, if corporate leaders abandon London to establish headquarters in the remaining EU countries, the adjustment of London property values would be negative.

The higher education market is expected to be greatly affected by Brexit and this could result in large US-based international firms losing projects. The status of student movement into the UK is likely to change, and without the large EU interest in UK schools, new projects may not have funding. Even private schools, which are often reliant on fundraising from foreign parents and investments in a potentially declining UK economy, could find their income streams dry up and projects cancelled or postponed.

The end of the freedom of EU workers to move across the UK will mean that if construction does not decline significantly there will be a shortage of labor—the UK estimates that at least 12 percent of the construction industry’s workforce is from other EU countries. If the pound plummets in value, the 64 percent of construction materials that the UK recognizes as imports from EU nations will cost significantly more. So for projects in the UK, there may be both a significant rise in material costs and upward pressure on construction worker wages. That inflation should alter the return on investment of many projects and restrict growth.

During the two-year transition period, investment in the commercial construction industry will likely be problematic. Although the investment of Europeans in the UK commercial sector is likely to drop, there might be significant opportunity for investments to flow from the US and Asia as the exchange rate makes investment more attractive for non-European investors.

The Brexit vote has plunged Britain, the European Union, and capitals markets around the world into an uncertain future. The impact of the vote on US-owned or US-based design firms is unknown.

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