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Tough times ahead for real estate, capital markets and M&A, says latest NatWest report

Real estate, equity capital markets and M&A practices are expected to slow down significantly in the year ahead, despite UK law firms continuing to be highly profitable and a significant contributor to the economy, according to NatWest’s latest ‘Perspective on the Legal Market’ report out today (8 November).

The report also states that litigation and debt finance are to remain ‘relatively buoyant’ while the fast-changing regulatory landscape is generating premium advisory mandates for the top players.

Commenting on the findings, NatWest’s head of legal sector and author of the report James Tsolakis said: ‘If there is one thing lawyers dislike above everything else, it is uncertainty. However looking at the current marketplace and how the firms are responding to this prolonged uncertainty and the activation of article 50, it’s likely to be quite a litigious, contentious period ahead as clients of law firms are repositioning themselves and trying to define their commercial interest.’

Herbert Smith Freehills (HSF) corporate partner Gavin Williams (pictured) agreed: ‘In certain sectors, we expect to see a slowdown in M&A activity inbound to the UK until the terms of the UK future relationship with the EU become clearer. This will particularly affect heavily-regulated sectors, such as financial services, with high degrees of European harmonisation. In other sectors, countervailing factors such as movements in the value of currencies and the consequential effects on demand and profitability may have something of a re-balancing effect.’

However many prefer to focus on the opportunities arising out of Brexit, such as Shearman & Sterling’s head of global financial institutions Barney Reynolds, who reiterated that ‘It is possible to see opportunities from the changes Brexit brings with it and to help with those. A lot of discussion has been very negative.’

According to Natwest’s report Brexit will mean redundancies in the short term are inevitable as firms grapple with pre-referendum rates, lower instruction volumes and increasing costs and tightening margins. However Brexit is expected to create a whole new industry for firms to focus on, as clients, governments and regulators seek guidance on how best to navigate the complex legal challenges ahead, including moving their headquarters to other European financial centres.