Talking Point: Good news/bad news
The speech from the Chancellor has just begun to sink in. And perhaps the overall reaction from the East Midlands is one of relief. Sure, there are some tough times to come – but we perhaps didn’t fare as badly as we had first expected.
Over the last few weeks we have started to hear the expression ‘fair’ or ‘fairness’ used in the world of politics. Indeed George Osborne used one or other 30 times during his speech – setting out his plans to reduce the £843bn deficit.
But what of the effect on the commercial property sector, and specifically in the East Midlands? Was it “fair”?
First the good news. The go ahead for the Nottingham tram lines two and three help the city make progress. More money being spent on the M1 would, in my view, have been better for Nottingham if it had been funnelled into the single cart track we lovingly know as the A453.
The bad news may be that we see a return to the early 1990s when the Inland Revenue walked away from all of the temporary offices they had mopped up while Castle Meadow was being built. As Government departments look to save costs there will inevitably be surplus property – think Emda, GOEM and the like.
This might present opportunities for the property market, but it could also have a suppressing effect by flooding it. We don’t need more second hand stock – we need new Grade A property.
The real issue is that unemployment is likely to rise as direct cuts in the council budget takes effect. Half a million people might be affected.
Unemployment affects confidence. And a lack of confidence usually hits the housing market and commercial markets as occupiers choose to pay down debt rather than investing.
So I think we can expect a lacklustre commercial market place as firms contemplate investment. This tends to be quite long-winded and means that 2011 will be interesting in terms of transactional business.
People have also forgotten about VAT – 20 per cent from January and this too impacts on spending power.
The banks do not look as though they have escaped, with levies on their profits becoming permanent. On the face of it this might be seen as a victory for Joe Public who baled them out; but in reality we need a healthy banking sector to lend to business. The level of lending at the moment is very low. Some of these banks also directly invest in property. We need to keep them incentivised to do so and not provide barriers to the market.
Overall, my view is that this is not as bad as we expected. The recovery (if that’s what it is) is very fragile and only time will tell if the Government has got it right. Forget “fairness”, I think it’s more a case of “fingers crossed”.
Tim Garratt, director of asset management, Innes England
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