From the moment an election date was announced earlier this year, UK businesses have been in a state of suspense, heightened more recently by waiting for the new Government’s budget. The commercial property market has not been immune to uncertainty and has been treading water, therefore whilst transactions have still been occurring, numbers are lower compared to 2023.
At the time this article was written, the new Government had just delivered its first budget and the full implications of substantial increases in taxes and borrowing were just sinking in.
One question that comes to mind is a potential knock-on effect on the commercial property market, and should we all care?
Simply put, commercial property is the home for our High Street retailers, manufacturing industry, distribution companies, professional services and leisure activities – including the businesses who make the bread for our tables, the garage that services our car and the warehouses which store the products we buy.
The extra borrowing the government is embarking on has the potential to keep interest rates relatively high. The level of interest rates directly affects the funding of commercial property mortgages and also has a direct impact on the viability of new commercial property development. My gut feeling is the commercial property market will continue to tread water until after Christmas 2024, when we may see a gradual increase in the number of buildings and premises coming to market in the New Year as certain companies decide to downsize or cease trading, with staff costs increasing following rises in minimum wage and employers’ National Insurance contributions.
On a positive note, churn in the market – as businesses reset their needs – will provide opportunities. For tenants of light industrial and warehouse units, rent increases look like easing from the significant rent rises in recent years, which for example saw as much as a 40% increase at fifth anniversary rent reviews. There is some good news in the budget regarding extending the period of business rate relief for High Street retail and hospitality. There was even a modest drop in duty for the draught beer drinkers!
The Cotswolds remains a popular tourist attraction and place to live, and will still attract entrepreneurs to establish businesses, so I remain cautiously optimistic that firms and directors will adjust and move forward, and there will be no short-term dramatic consequences as a result of the budget.
