With the election results now in, the time for optimistic promises is over and the real work begins for the new Government. The challenge ahead remains the same as it has for the UK and other economies since Covid-19: how to invest in the country and reduce the debt burden when the tax take is already high, and cuts in public spending are not culturally acceptable to a Labour Government.
From a property perspective, the pre-election period followed a familiar pattern, focusing heavily on housing in the manifesto while offering limited attention to commercial property, aside from a few comments on the business rates regime. However, what commercial property investors and occupiers need from the new Labour Government is straightforward: stability and an environment conducive to growth.
Recent years have given investors and businesses many reasons to delay capital spending decisions. Some of these reasons stemmed from the weak economy, others from rising borrowing costs, and some from a period of heightened political instability. With inflation returning to target levels and GDP growth projected to steadily recover through the remainder of 2024 and into 2025, investors and businesses now hope for a stable and predictable political environment.
The first budget of a new government typically serves as a statement of future intentions rather than fulfilling specific manifesto pledges. We anticipate more clarity on taxation and spending when the budget is announced. Labour understands that it needs to foster an environment where economic growth can recover, as this is the least painful way to increase overall income from taxation. Given the relatively small difference between Labour and Conservative tax plans discussed pre-election, it is unlikely that this first budget will contain many surprises for the commercial sector.
Most commercial property decisions are made with long-term horizons in mind, making a lack of surprises the most important policy trajectory we can hope for over the next five years. If political volatility remains external, the UK might benefit from appearing more stable than its peers to global real estate investors, a factor that has historically driven increased inward investment into the country. Prime yields in many sectors have already started to harden, but investment activity has been held back by expectations of recovery and the search for distress. With political matters now resolved, the time to invest in the UK is likely to be now.
While the Labour Party’s manifesto was titled ‘change,’ and many voters were drawn by the prospect of breaking away from the past 14 years, for those planning medium to long-term real estate decisions, a boring, stable environment may well be the best option.
Real Estate Credit Investments Limited (LON:RECI) is a closed-end investment company that specialises in European real estate credit markets. Their primary objective is to provide attractive and stable returns to their shareholders, mainly in the form of quarterly dividends, by exposing them to a diversified portfolio of real estate credit investments.
