At this moment in time it is difficult to say with any great certainty how the UK Brexit situation will pan out. There have been rumours and counter rumours with suggestions that some financial giants may be moving out of London at some point. As a consequence, there is a growing belief that Germany could become the new financial hub of Europe. So, how might the German property market benefit from Brexit?
Conservative banking industry
The London financial industry is known for its innovation and its forward thinking, something which the likes of Germany have struggled to compete with (so far). Historically the German banking industry has been seen as relatively conservative and unwilling to take a leap into the world of new technology – although changes are afoot!
There is a growing belief that Germany could benefit from the UK leaving the European Union with Berlin and Frankfurt seen as possible new homes for financial giants. If expectations are realised this could have a massive impact on the German property market.
Impact on German property market
While it would be wrong to suggest that it is only the London financial markets which attract overseas property investment, it is certainly a big part of London’s attraction. If some of the larger financial institutions currently housed in London were forced to move to remain within the European Union then Germany could be the first port of call. There have been suggestions that Paris could benefit in the short to medium term but many believe Germany will be the greatest benefactor.
History shows us that strong financial markets and a buoyant start-up industry are both very strong attractions for property investors. These two markets together tend to attract the high earners of the business world and like we saw in Silicon Valley success breeds success. If we were to see a battle between Frankfurt and Berlin this would be highly beneficial for the German real estate market. While Berlin is seen as currently in “another league” compared to the likes of Frankfurt, Munich and Hamburg, things are starting to change.
Prospects for the future
At this moment in time the German financial technology sector, otherwise known as FinTech, is value at around €2.3 billion a year and supports 13,000 workers. This is all very impressive but the FinTech market in California is worth €6.3 billion per annum and supports 74,000 jobs. So, we only need to look at the impact that the high-tech revolution had on Californian real estate to see the potential for Germany. If forecasts of an increase in the German FinTech sector to €58 billion a year by 2020 are realised, this would be a game changer!
Those who follow the German property market will know that there has been renewed interest of late in some of Germany’s more prominent cities. Even though the European economy is still struggling it seems as though a shortage of suitable property in the likes of Berlin, Frankfurt, Munich, etc is feeding property price rises. Let’s not forget, many German and European property markets in general have been friendless since the 2008 US led worldwide crash. The fact is that if the European Union does survive in the longer term then the likes of Germany will benefit most.
When looking at potential property hotspots of the future it is worthwhile looking at the underlying employment markets to see exactly what the potential might be. The situation regarding London and Brexit is tricky with many financial institutions pushing the UK government to negotiate a separate financial arrangement for London to remain in the single market. In reality this is unlikely to happen but never say never in the world of politics.
However, any increase in the size of the German financial market (and FinTech sector) would attract significant investment, improved job creation and ultimately rising demand for property. It may be a gamble, the UK may pull a rabbit out of the hat in Brexit negotiations but the German financial sector appears determined to shake-off its “conservative” label.