Commercial Property Market Review – August 2022

Caution key in Q2 RICS survey

Μacroeconomic pressures are negatively influencing investor sentiment, according to the latest Royal Institution of Chartered Surveyors UK Commercial Property Survey (RICS), which signalled a more cautious tone in the commercial property market.

Rising interest rates remain a burden, with a net balance of -42% of respondents acknowledging worsening credit conditions in Q2. Indeed, +43% of respondents now sense the market is entering the early stages of a downturn, a finding replicated across all regions of the UK.

The survey also revealed a rise in vacant leasable space in both the office (+22%) and retail (+27%) sectors. Meanwhile, an aggregate net balance of +17% of respondents reported an increase in tenant demand during Q2.

Near-term rental growth expectations are still in positive territory (+14%), though eased slightly compared to Q1 (+19%). Twelve-month capital value expectations are almost flat, with the all-property average now at +3%, well below the Q1 reading of +24%.

Scotland sky-high in Q2

Investment in Scottish commercial property reached a four-year high in the first six months of 2022, according to a report by Colliers, which showed investors poured £1.3bn into the country.

Offices were the most popular asset class, taking £330m of investment in the second quarter of the year. This is 80% above the five-year quarterly average and was boosted by a few large transactions, notably the £215m sale of 177 Bothwell Street in Glasgow, believed to be Scotland’s largest ever office transaction.

Another stand-out trend in the second quarter was the dominance of overseas investors. Indeed, cross-border capital accounted for 61% of all activity by value in Q2, one of the largest shares on record.

Responding to the figures, Director at Colliers, Patrick Ford commented, “This year has been hard to predict [but] one thing is certain – there’s a real appetite for large scale capital deployment in Scotland, regardless of sector.”

New skyscraper for London

A new 285m (935ft) skyscraper could be coming to the City of London, with plans underway to build a 60-storey structure at 55 Bishopsgate.

If the plans come to fruition, the new giant will join London’s 34 existing skyscrapers – defined as buildings over 150m tall – and stand only 25m short of the Shard, currently the UK’s tallest building. Costing £600m, the project, which is being led by Schroders Capital, will produce 800,000 sq. ft of office space.

Sustainability is reportedly baked into the proposal. The skyscraper would be the UK’s ‘first all-electric tall building’, according to a report from the Local Democracy Reporting Service (LDRS). The proposals also include plans to fit the building with energy-saving, light-responsive blinds.

The LDRS report notes that ‘the slender tapering design seeks to make a positive contribution to the skyline by balancing the composition of existing and proposed nearby tall buildings.’ In any case, the project remains in its early stages, with obstacles such as the City’s planning committee still to navigate.

All details are correct at the time of writing (17 August 2022)

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

News in Review

“Own-label ranges are at record levels of popularity”

UK retail sales improved in July, according to data released on Friday from the Office for National Statistics (ONS). Sales volumes rose by 0.3% in the month, outperforming predictions of a 0.2% decline.

According to ONS, sales volumes were 2.3% above their pre-COVID (February 2020) levels, but down over the past year and for the three months to July 2022 sales volumes were 1.2% lower.  A variety of promotions in July contributed towards a boost in online sales, with volumes picking up by 4.8%, while food store volumes registered a 0.1% uptick in the month. As UK inflation rose to 10.1% in July, the ONS revealed last week that rising food prices made the largest upward contribution to price increases over the month, with cheese, eggs, bread, cereals and milk contributing the largest price rises.

Fraser McKevitt, Head of Retail and Consumer Insight at global market researcher Kantar, commented on grocery price inflation, “As predicted, we’ve now hit a new peak in grocery price inflation… It’s not surprising that we’re seeing shoppers make lifestyle changes to deal with the extra demands on their household budgets.” He continued, “Own-label ranges are at record levels of popularity, with sales rising by 7.3% and holding 51.6% of the market compared with branded products, the biggest share we’ve ever recorded.”

As cost-conscious customers contemplate their weekly grocery shop, Aldi is poised to become one of the ‘Big Four’ UK supermarkets, overtaking Morrisons. Aldi held a 9.1% share of the grocery market in the three months to 7 August, up from 8.2% last year. Tesco, Sainsbury’s and Asda currently reside in the top three slots by market share.

ONS report that housing and transport, along with food prices, make up the majority of price rises over the last year, with fuel prices up by 43.7% in the year to July.

Last week the UK became the third developed country to record double digit inflation in July, along with the Netherlands and Spain.

Reduction in cash use eases off

A recent UK Finance report analysing payment methods has highlighted that the speedy decline in the use of cash has eased. Although the use of cash is still expected to tail off, accounting for just 6% of payments by 2031, the report points out that, ‘Rather than the UK becoming a cash-free society over the next decade, the UK will transition to an economy where cash is less important than it once was but remains valued and preferred by many.’ Natalie Ceeney CBE Chair of the Access to Cash Review has indicated that those favouring cash “tend to be older, poorer or more vulnerable, many of whom simply can’t go digital.”  Card use, particularly contactless payments, looks set to continue; in 2021, debit or credit cards were used in 57% of all UK payments.

Markets

Towards the end of last week, the FTSE 100 proved to be surprisingly resilient following the news that consumer confidence has hit a record low. London stocks finished in the red on Tuesday, after a fresh batch of data from the Purchasing Managers’ Index (PMI) showed manufacturing activity unexpectedly contracting, with the FTSE 100 closing down 0.61% at 7,488.11 and the FTSE 250 closed down 0.99% at 19,306.89.

On a lighter note

Last week it was announced that the first flight of NASA’s Orion spacecraft carrying an array of culturally significant mementos will be heading on a mission to the moon. Launching from the Kennedy Space Center in Florida on 29 August the unmanned flight will commence the Artemis program, a mission which will eventually return astronauts to the surface of the moon. Great excitement was created when it was revealed that a toy of UK TV character Shaun the Sheep will be on board. Director for Human and Robotic Exploration at the European Space Agency’s (ESA) Dr David Parker, commented on the collaboration, “It is an exciting time for Shaun and ESA. We’re very happy he’s been selected for the mission and we understand, although it might be a small step for a human, it’s a giant leap for lambkind.”

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (24 August 2022)

News in Review

“These are challenging times”

In a week where droughts were officially declared across England, the Office for National Statistics’ (ONS) latest assessment of the UK economy revealed tough economic conditions. In the second quarter, the UK’s gross domestic product (GDP) fell by 0.1%, largely the result of a 0.6% monthly dip in June. According to ONS, June’s poor reading was partly attributable to falling retail sales and the Queen’s Platinum Jubilee Bank Holiday, which resulted in two fewer working days.

Despite the headline negativity, however, there were positive contributions from consumer-facing services, including tourism and the arts. Responding to the data, Chancellor Nadhim Zahawi ventured that “the contraction is partly because of some of the COVID activities reducing but also real resilience in the private sector which actually in many ways bodes well.” “Nevertheless”, he admitted, “these are challenging times.”

Employment resilience

On Tuesday, the release of ONS employment data indicated a small quarterly drop in the Q2 employment rate, the first time this figure has fallen since 2020. Correspondingly, there was a small increase in unemployment, with the official rate now estimated at 3.8%.

Despite the quarterly rise, unemployment remains below pre-pandemic levels. Moreover, the number of payrolled employees increased across all regions, with the largest rises seen in London and Northern Ireland. Separately, a productivity flash estimate from ONS showed output per hour worked remained unchanged in the second quarter.

Meanwhile, the Recruitment & Employment Confederation (REC)’s latest Labour Market Tracker revealed that the number of active job adverts across the UK hit a new high for 2022 in the final week of July. New postings have been steady throughout the past two months and reached a record 1.85 million in the week of 25-31 July. Kate Shoesmith, the Confederation’s Deputy CEO, commented, “This new data shows the continued strength of the jobs market, despite any wider economic uncertainty.”

Fall in real pay

While average pay rose by 4.7% between April and June, according to ONS data released on Tuesday, the cost of living is outpacing wage growth, meaning that the real value of pay fell by 3%. Private sector wages grew by 5.9% while those working in the public sector saw pay growth of 1.8% which according to Darren Morgan, Director of Economic Statistics at the ONS is the “largest difference we have seen for 20 years.”

Positive US news

Positive news came from the US last Wednesday, with the announcement that the annual inflation rate had eased to 8.5% in July. Although still high, the rate is comfortably below the 9.1% recorded a month earlier. The easing was largely the result of falling petrol prices, which recorded a monthly drop of 7.7%.

Manufacturing output in the US rebounded by 0.7% last month after declining by 0.4% in June, the Federal Reserve said on Tuesday. A Reuters poll of economists had forecast factory production would rise by 0.2%.

Drought announced

The Environment Agency last week declared drought conditions in eight regions across the south and east of England, with experts now warning the drought could carry on into next year. The Environment Agency confirmed that Yorkshire was added to the drought list. Last month, England experienced its driest July since 1935, causing worries for the natural environment and farming. Indeed, a survey released this week by the National Farmers’ Union found that dry weather, as well as worker shortages, has already resulted in £22m of fruit and vegetables going to waste in 2022.

Markets

London’s FTSE 100 hit its highest level in more than two months on Tuesday, with a good performance in the mining sector and a mixed response to UK employment data. The top share index ended the session up 0.36% at 7,536.06.

Brent crude oil prices remained under pressure following Monday’s weak economic numbers from China, which is one of the biggest buyers of natural resources. The price dropped to around $92 a barrel on Tuesday.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (17 August 2022)

Mortgage myths – fact versus fiction

  1. MYTH: You need a perfect credit rating

A bad credit history can have a negative impact on your mortgage application, but it doesn’t make getting a mortgage impossible. Indeed, there are specialist lenders who offer mortgages to people with less favourable credit histories.

  • MYTH: You can’t get a mortgage if you’re self-employed

It’s also a myth that being self-employed means you can’t get a mortgage. You might have to jump through a few extra hoops to prove your income, but with the rise of freelance and flexible work, many lenders are now better suited to assess different employment situations.

  • MYTH: You should choose a home before thinking about mortgages

The opposite is true! It’s a good idea to meet with us before finding your dream home. Securing an Agreement in Principle will speed things up once you have an offer accepted.

  • MYTH: You should always pick the lowest interest rate

Although it’s natural to focus on the headline figure, a low initial rate does not necessarily mean a cheaper mortgage. If you’re on a tracker mortgage, for example, the rate can rise at any time. So, a higher fixed rate might end up cheaper in the long term. Different fees can also come into play; we can weigh up your options.

  • MYTH: You need to get a mortgage from your current bank

There’s no obligation to get a mortgage from your current bank. In fact, it’s a good idea to compare multiple providers to find the best deal for your needs – that’s where we come in!

Get in touch

We can help dispel myths at every stage of your mortgage journey. Our clear and transparent approach will help you find the most suitable mortgage for your circumstances.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

Gen up on pension numbers

With so many financial priorities to juggle, it can be hard to put your pension first, especially with spiralling household costs. Starting or maintaining your pension contributions is important.

Whatever type of pension plan you have, you get tax relief at the highest rate of Income Tax you pay on all contributions you make, subject to annual and lifetime allowances. This effectively means that some of your earnings which would have gone to the government as tax are diverted to boost your pension pot instead.

Make the most of your allowances

The Annual Allowance for pensions is £40,000. For those with an income above £240,000 (£200,000 threshold income plus the £40,000 you can save into a pension) the Annual Allowance begins to taper; for every £2 of adjusted income above £240,000, the Annual Allowance for that year reduces by £1. The minimum Annual Allowance is £4,000.

The Lifetime Allowance – the maximum amount you can have in a pension over a lifetime without incurring an extra tax charge is £1,073,100.

Don’t forget your State Pension

From 6 April, the new single-tier State Pension increased to £185.15 per week and the older basic State Pension rose to £141.85 per week. You can get a projection and find out your retirement age here www.gov.uk/ check-state-pension

Treating you as an individual

We offer advice and help with all aspects of pensions and retirement planning, whether you’re just starting out and want help choosing the most appropriate pension products, or you’re approaching the stage of life when you need to utilise your pension pot and want to know the most efficient way to access your funds.

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

IHT – time for a refresh?

Latest data from HM Revenue & Customs (HMRC) revealed IHT receipts for April 2021 to March 2022 were £6.1bn, 14% (£0.7bn) higher than in the same period 12 months earlier.

Factors at play

Receipts have increased partly due to higher death rates during the pandemic, as well as due to the rise in property prices which has seen more families coming into scope for IHT. With thresholds frozen at current levels – the nil-rate band is £325,000 and the main residence nil-rate band is £175,000 – IHT is effectively a stealth tax.

IHT top tips

Gifts – use your £3,000 annual allowance before the end of each tax year. You can also make gifts of up to £250 per person per tax year

Trusts – for example putting money into a trust to pay for a grandchild’s education or to support another relative

Make a Will – and keep it up to date

Leave money to charity – if you leave at least 10% of your net estate to charity, the IHT rate reduces from 40% to 36%

Take out life assurance – this won’t reduce your estate but instead provides a lump sum to your beneficiaries to pay the IHT bill. The policy should be written under a suitable trust

Take advice – sensible IHT planning can help to reduce the amount of IHT your beneficiaries will have to pay and safeguard your wealth for the future.

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

Don’t give up your protection policy

With households facing the biggest squeeze on their incomes in many years, it’s understandable that families are looking for ways to cut costs.

When looking to cut back, reviewing subscriptions and direct debits (for example, for streaming services, food subscription boxes or gym memberships) is often a good place to start, but there is one cost that you shouldn’t be so quick to give up.

Protection is vital

As tempting as it is to cancel protection insurance policies, times of financial difficulty are exactly when we need protection the most.

Many policyholders aren’t aware that life insurance cover can be flexible, and there are ways to reduce your cover rather than cancelling it outright.

Get in touch

If you have any questions about your protection policy please do get in touch. We can help you organise your finances and keep your vital protection cover in place.

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

News in Review

“It’s our job to get inflation back down to 2%, so we have raised interest rates”

After five successive smaller rises, last week saw the Bank of England’s Monetary Policy Committee (MPC) up the ante and increase Bank Rate by 0.5 percentage points, the biggest rate hike since the MPC was established in 1997.

At 1.75%, Bank Rate is now higher than at any point since December 2008. The 0.5% rise will translate into an extra monthly cost for homeowners on a tracker or variable rate mortgage, while those with credit cards, bank loans and car loans will also see higher charges on their debt. In announcing the rise, the Bank of England (BoE) acknowledged the hardships people are facing but reaffirmed its objective, “It’s our job to make sure that inflation returns to our 2% target, and that is what we will do”.

Global trend

Like other central banks around the world, the BoE is raising rates in response to soaring inflation. When announcing the rate rise, the MPC warned that inflation could hit 13% next year, partly due to the rising energy price cap. The UK’s inflationary pressures are also part of a global trend, prompted largely by Russia’s restriction of gas supplies to Europe. Since May, wholesale gas prices have almost doubled, while uncertainty still abounds over the possibility of future Russian curbs.

Oil production

One group with the power to ease some of the price pains is the Organization of the Petroleum Exporting Countries (OPEC). Following pressure applied by US President Joe Biden and other Western leaders, the world’s biggest oil producers agreed to a slight increase in production at a meeting of OPEC+ last Wednesday. The larger grouping of OPEC and its allies, which include Russia, pledged to increase supply by 100,000 barrels a day, equivalent to around 0.1% of global demand, starting from September. OPEC expects global oil demand to rise in 2023 but at a slower pace than in 2022.

Energy price cap change

Ahead of the latest rise to the UK’s energy price cap in October, regulator Ofgem announced new plans that will see household energy costs change every three months. Currently, the price cap updates every six months; moving to quarterly changes should allow price rises and falls to be passed onto customers more quickly. Ofgem claims this will reduce price shocks, while Greg Hands, the Minister for Energy, noted that, “If energy prices were to start to fall people would see those benefits more quickly.”

On Tuesday, however, consultancy Cornwall Insight made an upward revision to its forecast for January 2023 in response to the plans. It now expects energy bills to hit £4,266 a year for a typical household by the start of next year.

Car sales down …

Last Thursday, the Society of Motor Manufacturers and Traders (SMMT) announced that sales of new cars in the UK fell by nearly 9% in July, leading the body to downgrade its outlook for the full year.

As global supply chain issues continue to frustrate order fulfilment, the revised forecast of 1.6 million new car registrations would represent a 2.8% year-on-year decline. The SMMT also pointed to COVID lockdowns in key manufacturing and logistics centres in China, as well as disruption from the war in Ukraine, to explain the falling sales. In the face of all these difficulties, the body noted that the industry was facing its ‘most challenging year for three decades’.

… but retail sales heat up

According to the British Retail Consortium, retail sales in the UK increased by 1.6% on a like-for-like basis in July 2022 from a year ago, rising for the first time in five months. Demand for items such as electric fans, summer clothing and picnic food during the record hot weather helped retailers rebound last month. 

Markets

London stocks were mixed at close on Tuesday with investors awaiting the latest key US inflation data which is due for release on Wednesday. The FTSE 100 ended the session up 0.08% at 7,488.15, while the FTSE 250 was down 1.02% at 19,912.40. Wall Street stocks closed weaker on Tuesday – the Dow Jones finished down 0.18% at 32,774.41 and the Nasdaq Composite lost 1.19% to end the session at 12,493.93.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (10 August 2022)

News in Review

“The world’s three largest economies are stalling, with important consequences for the global outlook.”

Last week saw the International Monetary Fund (IMF) release its latest economic assessment andforecast for the global economy. Following the effects of the pandemic and Russia’s invasion of Ukraine, the IMF now expects growth to slow to 3.2% in 2022, a downgrade of 0.4 percentage points from its previous publication in April.

The uncertainty is expected to continue into 2023, with next year’s forecast also downgraded to 2.9% (from 3.6% in April). According to the IMF, ‘this reflects stalling growth in the world’s three largest economies – the United States, China and the euro area’.

Amidst the uncertain global outlook, the IMF is predicting that the UK will have the slowest growth of the G7 economies in 2023, at 0.5%, significantly below April’s figure of 1.2%.

Primary among the faltering economies is the US, which entered a technical recession on Friday after shrinking for a second consecutive quarter.

As for China, the IMF revised its growth forecast down to 3.3% in 2022, the slowest rate in more than four decades, excluding the pandemic. On Tuesday, it was reported that party leaders in China were re-framing this year’s growth target of around 5.5% as guidance rather than a hard target.

Eurozone forecast

The outlook for the eurozone was also downgraded, with growth now forecast at 2.6% this year and 1.2% next year. The day after the Women’s Euro Championships Football Final, the release of Germany’s monthly retail sales statistics will have done little to lift the nation; in June, German retail sales volumes fell by 8.8%, the largest annual drop since records began. Official figures released on Friday had already revealed stagnant growth between the first and second quarters in the eurozone’s biggest economy.

Inflation data released on Friday revealed a eurozone-wide 8.9% spike in July, the highest rate since the creation of the euro in 1999. Globally too, the IMF revised its inflation estimates upwards, forecasting 6.6% in advanced economies (up 0.9%) and 9.5% in emerging economies (up 0.8%) this year.

‘Inflation at current levels represents a clear risk for current and future macroeconomic stability’ according to Pierre-Olivier Gourinchas of the IMF, who stated that ‘bringing it back to central bank targets should be the top priority for policymakers.’

UK’s electric vehicle plans

UK car production figures released last week, however, provided a much-needed bright spot, increasing by 5.6% year-on-year in June. Optimism in the industry was further bolstered by news that Britishvolt will receive government funding to build a ‘gigafactory’ in Cambois, near Blyth, which will allow for the mass production of electric car batteries and create 3,000 jobs.

Announcing the development, Business Secretary Kwasi Kwarteng said, “The Blyth gigafactory will turbocharge our plans to embed a globally competitive electric vehicle supply chain in the UK and it is fantastic to see how the project is progressing.”

Energy help

Last Friday welcome news came for many as the government announced that households in England, Scotland and Wales will receive £400 fuel bill support payments in six monthly instalments starting in October. Households will see a discount of £66 applied to their energy bills in October and November, and £67 a month from December to March 2023.

Apple and Amazon sales up 

Better than expected sales have been posted by both Apple and Amazon, reassuring investors that the tech giants will be able to weather slowdowns in global economies. The quarterly updates from Apple and Amazon are closely watched as indicators of how customers are reacting to the economic climate. The updates sent the companies’ shares soaring.

House prices still climbing

According to Nationwide, house prices climbed 11% in the last 12 months, although the rise over the last month was just 0.1%. “The housing market has retained a surprising degree of momentum” said Robert Gardner, Nationwide’s Chief Economist, adding that there were “tentative signs of a slowdown in activity”.

The July figure was marginally ahead of June’s annual rise of 10.7% and left the average house price at £271,209. The Bank of England is expected to increase interest rates on Thursday.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (3 August 2022)

Trust Registration Service update

The Trust Registration Service (TRS) opened in 2017 with the aim of digitalising the trust registration process. Following the UK’s adoption of the EU’s Fifth Anti-Money Laundering Directive (5MLD) in 2020, changes to the TRS were required in order for HMRC to fulfil its obligations under the new regulations.

The new rules require all UK express trusts and some non-UK trusts (including most non-taxable trusts) to register with HMRC. The TRS began accepting registrations from non-taxable trusts in September 2021, with an initial deadline of 10 March 2022. Due to delays in getting the TRS prepared, this deadline was later amended to 1 September 2022.

Rules relating to non-taxable trusts

The September 2022 deadline applies to all trusts that existed on or after 6 October 2020 – even if they are now closed. Following this deadline, all new trusts (and any changes to the details of existing trusts) must be registered within 90 days. In order to not penalise trusts set up close to the September 2022 deadline, however, the 90-day rule will also apply to trusts set up on or after 2 June 2022.

Which non-taxable trusts are exempt?

There are some trusts that are exempt from registration unless they pay UK tax. Some examples include trusts used to hold money or assets of a UK-registered pension scheme, trusts holding life insurance and other policies that pay out upon a person’s death, charitable trusts and will trusts.

We understand that the rules relating to trusts are complex, so please don’t hesitate to contact us if you are unsure.

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.