Now I don’t know about you but seeing the Conservatives with an out-right majority was really not what I expected. However, now that I have got over the shock, it’s time to consider the “so what” as far as the UK commercial property market is concerned?
In the short term it looks like a vote for more of the same, albeit without the calming influence of the Lib Dem coalition partners. The response from the markets has been positive with the value of the pound up by over 1% and the stock market up by well over 100 points.
On the back of this outcome, it would be quite difficult to argue that the government has anything but a mandate to continue with the policies of the last five years; to an extent it is business as usual which is of course the stability that has comforted the markets.
However, are things really as rosy and stable as they may seem? What is likely to happen once the smoke has cleared? What are the implications of the overwhelming nationalist victory in Scotland? What about the possibility of a British exit following the Conservative pledge to hold a referendum on EU membership in 2017?
In reality it is possible that the Conservative victory may well embolden the Eurosceptics in the Conservative party, especially as the virulently anti-Europe UKIP is now the third largest party in the UK (by number of voters). An exit from Europe may have implications not only for the value of Sterling but also on inward investment; which could in turn affect commercial property values given the extent of overseas investment in the UK property market.
From our perspective, whilst the election has removed one set of short term uncertainties, it has replaced them with an alternative set of medium term uncertainties which are arguably more fundamental in terms of their potential impact on the UK property market.
However, the team here at KFIM remain firmly of the opinion that as long as the Government and the opposition avoid the lethargy which existed leading up to the Scottish referendum, the chances of a Brexit should be reasonably small. As such, we believe that the transparency and liquidity provided by the UK market will continue to attract the overseas money.
However, as one wag in our team has suggested (tongue in cheek I think) let’s hope that we do not end up with an independent England operating outside of the EU…..that really would be a wake me up I’m having a bad dream dayn!
CIO, Knight Frank Investment Management