My last blog, only two weeks ago, started with the immortal line:
“Is it just me, or are people around the world collectively doing their best to make this a very unstable world?”.
What I did not realise at that time was how widely read our blogs clearly are! In what I can only assume was a direct response (endorsement?) of my note, it was only 24 hours later that “The Donald” decided to up the ante by announcing that he had ordered the USS Carl Vinson to sail to the Korean peninsula, albeit to what end I am still not quite sure bearing in mind the “armada” eventually turned out to be steaming in completely the opposite direction (and in the meanwhile, the Japanese Government had issued an online warning on what to do in the event of a ballistic missile attack!!). And not to let me down, only a couple of days after that, our Theresa announced that she would be calling a General Election (despite having apparently made eleven previous denials on exactly the same subject), theoretically opening the door to what in her own words would be a “Coalition of Chaos”. Thank you both.
Being serious for a moment, I believe that the election can only be a good thing. If the polls are correct, the Tories will win and will win comfortably. At this point in time, my own view is that anything which gives the governing party greater certainty and conviction in what will undoubtedly be long and sometimes fraught Brexit negotiations has got to be a positive. In addition, and whatever your political persuasion, every democratic country needs a strong opposition and whilst many will admire Corbyn’s principles, it is difficult to argue that the Labour party, under his leadership, is anything but ineffective; hopefully the election will at least start the process of creating a credible opposition capable of holding the Government of the day to account (or am I in dream world?).
As far as the UK Commercial property market is concerned, what does all this mean? Only yesterday the CEO of Grosvenor issued a relatively downbeat assessment, making the point that property will be adversely impacted by the inevitable future increases in the base rate. Whilst this is of course true, the same can equally be said of virtually all of the other asset classes. Some might even argue that property, being a real asset with an income return that is invariably higher than most of the competing asset classes, is actually better placed to weather an interest rate rise. At the end of the day, people / institutions have got to put their money somewhere. My own view is that UK property will continue to attract new equity, both from UK investors and international investors (the latter continuing to benefit from the significant decline seen in the value of sterling). However, returns will be relatively unspectacular, potentially averaging around 5 to 6% across the market with the biggest area of risk being Central London; i.e. those areas most exposed to either the relocation of financial services staff or to the delay in decision making. I actually think that a convincing election result will potentially be a positive in the short term due to the perception (possibly the reality) that this will create greater stability and strength in terms of the future Brexit negotiations.
I am now going to encourage my learned friend and colleague, our CIO, Ian Whittock, to provide our readers with a far more technical and detailed view on the market. Watch this space.