Commercial Property Market Review – October 2021

Strong recovery for UK flex market

According to Workthere research, the flexible office sector regained momentum in H1 2021 following its pandemic-induced slump, with renewed appetite for flex space in both enquires (+30% on pre-pandemic levels) and transactions (+36%).

Flexible workplaces – a catchall term encompassing anything from serviced offices to fitted plug and play space – make up a significant part of the office landscape, with 12% of UK office workers expected to be using flexible workplaces at least some of the time after the pandemic subsides.

Nationally and globally, the provision of flex space remains weighted towards private offices (50%), with co-working desks (34%) and communal areas (13%) the next most popular uses. In recent years, the sectors choosing flex space have evolved. Tech has traditionally been the most active, but insurance and financial, business and consumer, and professional services collectively accounted for almost half of desks this year.

This sectorial shift has also impacted the average size of occupier requirements. From 11 desks pre-pandemic, the average size per transaction is now 17 desks. Likewise, the number of companies taking licences of one year or more is 44% higher than before the pandemic.

Strongest capital growth for a decade

The latest UK Monthly Index Snapshot from commercial real estate services and investment firm CBRE showed capital growth in Q3 2021 was the strongest since Q1 2010.

Capital values increased by 1.6% across all UK commercial property in September, the highest capital growth figure since June 2014. The industrial sector reported record-breaking month-on-month growth of 3.1%, which pushed its Q3 figure to the strongest on record (7.5%). Monthly retail capital growth (1.7%) and office capital growth (0.5%) also increased.

Rental values for all sectors posted 0.3% growth in September, led by industrial rental values which rose by 0.8%. Total returns for the month were 2.0%, with readings of 3.4%, 2.2% and 0.8% for the industrials, retail and office sectors respectively.

New investment in world-leading science park

Magdalen College Oxford and GIC, a Singapore-based global investor, have entered into a strategic partnership to accelerate development of The Oxford Science Park (TOSP), a key location for science and technology firms.

The partnership aims to accommodate strong demand and future growth of its world-leading companies. Current occupiers include Exscientia, inventors of the world’s first AI-designed drugs to enter clinical trial, and Vaccitech, the company behind the Oxford AstraZeneca vaccine.

Planned state-of-the-art facilities include Plot16, a 15,600 sq.m eco-friendly development that will deliver office and lab space in two buildings divided by a raised central plaza. Construction is set to get underway by the end of the year, with strong interest already recorded in subsequent buildings.

Rory Maw, Chief Executive of TOSP, commented, “As well as being an enormous demonstration of confidence in the UK as a leading location for international life science and technology, this is a transformational investment… It enables us to meet unprecedented demand for high-quality laboratory and office space and to support the ambitious growth of new and existing occupiers.“

Nationally and globally, the provision of flex space remains weighted towards private offices (50%), with co-working desks (34%) and communal areas (13%) the next most popular uses

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Commercial property currently for sale in the UK

  • Regions with the highest number of commercial properties for sale currently are the South West and North West England
  • Northern Ireland currently has the lowest number of commercial properties for sale (27 properties)
  • There are currently 1,396 commercial properties for sale in London, the average asking price is £1,603,443.

Region No. properties AVG. asking price
London 1,396 £1,603,443
South East England 1,222 £2,038,093
East Midlands 742 £969,844
East of England 763 £639,422
North East England 770 £325,875
North West England 1,399 £399,062
South West England 1,560 £604,450
West Midlands 1,099 £485,440
Yorkshire and The Humber 1,126 £299,789
Isle of Man 53 £484,118
Scotland 1,134 £325,907
Wales 781 £407,393
Northern Ireland 27 £678,133

Source: Zoopla, data extracted 21 October 2021

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Leisure market recovery in the offing

The most recent UK Leisure Spotlight report from Savills has highlighted that during August, total UK leisure spend increased 6.4% above 2019 levels. Sector growth can be attributed to the volume of staycations and day trips. With total leisure and hospitality spend returning to positive territory, commercial property closures across the sector have reduced considerably when compared with last year.

Key points from the report:

  • The food and beverage sector is experiencing strong growth, with drive-thru and takeaway sub-sectors growing at pace
  • The number of out-of-town gyms has risen, as operators expand their presence across retail parks
  • Cinema admissions have increased, August admissions were 67% higher than August 2019
  • Pubs, bars and clubs saw a return to sales growth in August
  • UK leisure sector vacancy rates are expected to remain far below that of the retail market (11.8% versus 16.5%), this indicates ‘comparatively robust levels of demand.‘

Head of UK Retail at Savills, Alan Spencer, commented on the findings, “It’s no secret that the leisure sector has faced a series of challenges that we couldn’t have comprehended only two years ago. However, the market turned a corner over the summer and we’re now seeing requirements from operators across the entire sector, from traditional operators such as bars and restaurants to new competitive socialising concepts and immersive, interactive experiences.“

All details are correct at the time of writing (21 October 2021)

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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

‘Global cooperation is key to addressing our shared challenges as we emerge from the pandemic’

Chancellor Rishi Sunak stressed the importance of nations working together to tackle supply chain issues at a meeting of G7 (Group of Seven) nations in Washington last week. The meeting of finance ministers and central bank governors discussed the importance of ensuring that global supply chains become more resilient.   

Mr Sunak’s statement read, ‘Global cooperation is key to addressing our shared challenges as we emerge from the pandemic. From global tax reform to global supply chains, we must work together to seek international solutions for the benefit of our citizens at home.’

Supply chain problems were evident at the Port of Felixstowe last week. The port, which handles 36% of the UK’s freight container traffic, reported a logjam of shipping containers, due to a combination of driver shortages and ongoing effects of the pandemic in the busy run up to Christmas. Meanwhile, President Biden announced plans to keep the Port of Los Angeles open “24 hours a day, seven days a week,” to relieve pressure on an overworked supply chain that has grown into a major economic problem for the US.

G7 presents a roadmap for systemic economic reform

In a report entitled ‘Global Economic Resilience: Building Forward Better’, published on 13 October, the G7 Economic Resilience Panel set out a roadmap detailing how the G7 nations should work together to identify and manage emerging risks or coercion. Lord Sedwill, Chair of the Panel, said, “Economic resilience is delivered by diversification, co-dependence and public-private partnerships within well-governed, open and integrated global markets.” 

Bank of England will act on inflation

On Monday, the Bank of England Governor, Andrew Bailey hinted that UK interest rates may have to rise but gave no indication of when the Bank might increase rates. Mr Bailey said surging energy prices are another signal that the Bank will “have to act.” The next rate setting Monetary Policy Committee (MPC) meeting is scheduled for 4 November.

Office for National Statistics (ONS) figures released first thing on Wednesday morning show that the Consumer Prices Index (CPI) rose by 3.1% in the 12 months to September 2021.

UK economy grows on dining out and camping

August saw people taking advantage of the first full month of COVID freedoms, boosting the UK economy by 0.4%. This is according to ONS figures released last week, which revealed that the service sector made the most significant contribution to economic growth, growing by 9%, while activity in hotels and campsites grew by 22.9%.

Growth, however, continues to be underscored by concerns about ongoing supply chain disruption and labour shortages. Darren Morgan, Director for Economic Statistics at the ONS, commented, “The economy picked up in August as bars, restaurants and festivals benefited from the first full month without COVID-19 restrictions in England. However, later and slightly weaker data from a number of industries now mean we estimate the economy fell a little overall in July.”

Global Investment Summit

The UK’s Global Investment Summit began on Tuesday at London’s Science Museum, with the Prime Minister announcing 18 new trade and investment deals worth £9.7bn, which will support green growth and create an estimated 30,000 UK jobs. One such deal sees the UK government partnering with Bill Gates in new technology to reduce emissions. Boris Johnson said, “This is just the start. We will see new partnerships for green growth forged at today’s Global Investment Summit, as we look ahead to COP26 and beyond.”

Market update

With commodity issues weighing on global markets, investors continue to anticipate inflationary pressures, amid labour shortages and supply chain issues. As speculation intensified around the chances of a potential UK interest rate hike, the FTSE 100 and 250 drifted lower on Monday, but repaired any losses on Tuesday as investors digested signs of a robust start to the latest earnings season.

National Bureau of Statistics figures released on Monday, show that during Q3, China’s economy expanded by 4.9%, the nation’s weakest pace since Q3 2020. Significantly slower than the 7.9% rise in Q3, and below analyst expectations of a GDP 5.2% increase. The weak expansion news sent Asian stock markets momentarily lower as concerns about the world economic recovery returned to the fore.

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.

Money – In the news

A third enter retirement in debt

Retirement. You’ve paid off your mortgage, said goodbye to your colleagues for the last time and now it’s finally time to put your feet up and enjoy some well-deserved rest, free of commitments. That’s the ideal, anyway. Unfortunately, many retirees enter this stage of their lives with significant commitments hanging over their head, with research1 finding that a third of people now retire in debt. Worse still, 2021 retirees owe around a fifth more than last year’s cohort – around £20,650 on average. Forty percent have credit card debt, 31% still have outstanding mortgage payments, 17% are in their overdraft, while 8% have borrowed from family and friends.

IHT bills up year-on-year

Data2 published by HMRC has revealed that estates paid £5.4bn in Inheritance Tax (IHT) in the 2020-21 tax year – £0.2bn (nearly 4%) up on 2019-20. Each year, over 20,000 estates are liable for IHT, but there are ways to keep your estate under the nil-rate threshold or at least minimise your liability.

Triple lock changes for 2022-23

After much speculation, in September, Secretary of State for Work and Pensions, confirmed suspension of the average earnings component of the pension triple lock, to avoid a disproportionate rise of the State Pension following the pandemic. For the 2022-23 tax year only, the new and basic State Pension will increase by the higher of either 2.5% or the consumer rate of inflation.

National Insurance and dividend tax rises

A new health and social care tax will be introduced across the UK from April 2022. The tax will initially begin as a 1.25 percentage point increase in National Insurance, paid by both workers and employers. From April 2023, it will become a separate tax on earned income, calculated in the same way as National Insurance and ring-fenced as a health and social care levy. Tax on share dividends is also scheduled to increase by 1.25 percentage points.

1Key, 2021

2HMRC, 2021

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. Inheritance Tax Planning is not regulated by the Financial Conduct Authority.

Wealth – In the news

ESG assets will exceed £36.5trn by 2025

ESG assets are forecast to exceed £36.5trn – over a third of projected global assets – by 2025, according to Bloomberg Intelligence1. The analysis comes as environmental, social and governance factors are becoming increasingly important to investors across the globe.

Adeline Diab, Head of ESG and Thematic Investing EMEA & APAC at Bloomberg Intelligence, said, “The pandemic and the global race to net zero carbon emissions have put ESG criteria into orbit – from niche to mainstream to mandatory.”

Significant recovery for UK dividends in Q2

UK dividends rose by 51% in the three months to June 2021, jumping to £25.7bn on a headline basis2. Almost 90% of the increase, when compared to Q2 2020, can be attributed to firms restarting dividends. The increase was significantly ahead of an expected rise of 31%.

Income rich, cash poor

Research3 has revealed that 23% of households with an income of £100,000 would be unable to cover a major unexpected bill or survive more than three months without their income. The same is true for over one in ten households earning over £150,000. Although high earners have more coming in each month, in turn, they tend to have more outgoings, which can make saving difficult. However, the importance of having emergency funds should not be overlooked – it is essential for improving your resilience to financial shocks.

1Bloomberg Intelligence, 2021

2Link Group, 2021

3hl, 2021

The value of investments and income from them may go down. You may not get back the original amount invested.

News in Review

“The global recovery continues, but momentum has weakened”

In its latest assessment of world economic prospects published on Tuesday, the International Monetary Fund (IMF) lowered its 2021 global growth forecast slightly to 5.9%. The international soothsayer also stated that risks to economic prospects have increased, while policy trade-offs have become more complex in the ongoing pandemic. IMF Chief Economist Gita Gopinath said, “The global recovery continues, but momentum has weakened, hobbled by the pandemic.”

Supply chain adviser appointed

In the UK, during a week which saw continuing supply chain disruption and concerns over rising energy costs feature prominently across the news headlines, the Prime Minister appointed ex-Tesco boss, Sir David Lewis, as Chair of the newly created Supply Chain Advisory Group. The move was welcomed by business leaders, with CBI Director General Tony Danker describing it as “a positive development which shows the government is willing to listen to and work in partnership with business to tackle current challenges.”

Job market recovery continues

Office for National Statistics (ONS) data released on Tuesday reported good news on the jobs front. The latest figures showed the number of payroll employees rose to a record level, while vacancies hit another all-time high and unemployment continued to fall. ONS Director of Economic Statistics Darren Morgan said, “The jobs market has continued to recover with the number of employees on payroll in September now well exceeding pre-pandemic levels. Vacancies also reached a new one-month record in September, with our latest estimates suggesting that all industries have at least as many jobs on offer now as before the onset of COVID-19.”

Other data released last week also suggests the end of the furlough scheme on 30 September is unlikely to have triggered a fresh wave of redundancies. Although around a million workers were still believed to be on furlough when the scheme wound down, data from the Insolvency Service shows the number of redundancies proposed by employers in September was close to record low levels, with just 13,836 jobs reportedly at risk.

Starter salaries increasing

A survey released last week by the Recruitment and Employment Confederation highlighted the impact the current robust demand for workers is having on wages. The survey of 400 recruitment firms found the number of candidates available for jobs stands at a near-record low, with starting salaries for both permanent and temporary staff now rising at the fastest rate in the survey’s 24-year history.

Separate data from ONS showed that average weekly earnings (excluding bonuses) in the three months to August were 6.0% higher than in the comparable period last year, down from last month’s figure of 6.8%. ONS, however, again pointed out that the figures are being inflated by temporary factors and said their estimate of the current underlying pace of wage growth is between 4.1% and 5.6%. This compares with growth of around 3% just before the pandemic hit.

Rate rise speculation

The increase in employment and higher starter salaries has further raised the possibility that the Bank of England (BoE) may sanction an interest rate hike sooner than previously expected. The recent tone of the Monetary Policy Committee (MPC) has become more hawkish and last weekend one of its members, Michael Saunders, told households to get ready for “significantly earlier” interest rate rises as inflationary pressures mount.

While the case for a first post-pandemic rise has certainly strengthened, the BoE’s new Chief Economist and MPC member, Huw Pill, said he still expects rates to remain at relatively low levels. In comments published last Thursday, Mr Pill admitted the “magnitude and duration of the transient inflation spike is proving greater than expected” but said he expects rates “to remain at relatively low levels for the coming years.”

US Senate averts debt crisis

In the US last week, the Senate voted to temporarily raise the nation’s debt limit by $480bn, thereby averting a historic default which analysts said would have devastated the economy. The breakthrough came after weeks of partisan fighting and less than a fortnight before the US would have been unable to borrow money or pay off loans for the first time in its history. The bill was approved by 50 votes to 48 following Republican Senate leader Mitch McConnell’s decision to offer his support to the short-term extension.

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.

Triple lock changes for 2022-23

After much speculation, in September, the Secretary of State for Work and Pensions, confirmed suspension of the average earnings component of the pension triple lock, to avoid a disproportionate rise of the State Pension following the pandemic. For the 2022-23 tax year only, the new and basic State Pension will increase by the higher of either 2.5% or the consumer rate of inflation.

The value of investments and income from them may go down. You may not get back the original amount invested

National Insurance and dividend tax rises

A new health and social care tax will be introduced across the UK from April 2022. The tax will initially begin as a 1.25 percentage point increase in National Insurance, paid by both workers and employers. From April 2023, it will become a separate tax on earned income, calculated in the same way as National Insurance and ring-fenced as a health and social care levy. Tax on share dividends is also scheduled to increase by 1.25 percentage points.

The value of investments and income from them may go down. You may not get back the original amount invested

Percentage sales at decade high

Analysis1 suggests that almost seven in ten UK properties for sale, found a buyer in the year to June 2021, the highest rate in a decade.

Regional differences Scotland led the way with 89% of homes finding a buyer, while Yorkshire & the Humber was the second most successful area at 77%. Property hotspots included Falkirk and Sheffield, where 94% and 83% of homes were sold respectively. In contrast, London’s figure of 48% was below the average rate of 53% recorded between 2012 and early 2020.

Demand cools

Recent analysis of conveyancing quotes from comparison site reallymoving suggests that buyer demand is beginning to slow from its March peak, with successive drops between April and May (13%) and May and June (18%). This is likely to ease pressure on prices as we move further into the second half of the year. Rob Houghton, CEO of reallymoving, commented, “With the influence of the Stamp Duty holiday now largely expired alongside early signs that buyer demand is returning to more normal levels, we can expect prices to follow suit and return to a more stable trajectory.”

1Rightmove, 2021

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

Estate planning update

HM Revenue & Customs (HMRC) published its annual statistics on Inheritance Tax (IHT) in late July, revealing that IHT payments in the 2020-21 tax year totalled £5.4bn, up around £0.2bn (almost 4%) on the previous year, when receipts were slightly lower than 2018-19. Typically, more than 20,000 deceased estates a year are subject to an IHT charge.

The figures reveal that there has been a reduction in the number of estates affected in recent years, which HMRC believes is due to the phased introduction of the residence nil-rate band, which can allow the estates of married couples and civil partners to receive a total £1m nil-rate IHT band. A transferable nil-rate also assists this outcome, as it is possible to transfer any unused IHT allowance on death to a surviving spouse.

Estate planning can help to keep an estate out of the clutches of IHT or at least reduce the amount of tax payable, by taking simple steps such as making lifetime gifts, through to more complex trust arrangements. It is a specialist area, particularly with the possibility of a revised IHT regime being introduced, so professional input is advisable.

The value of investments and income from them may go down. You may not get back the original amount invested. Inheritance Tax Planning is not regulated by the Financial Conduct Authority.

News in Review

“Household saving fell particularly strongly in the latest quarter from the record highs seen during the pandemic”

The easing of COVID restrictions has resulted in an economic rebound that has exceeded initial estimates, according to data from the Office for National Statistics (ONS). During Q2, the economy grew by 5.5%, up from the 4.8% forecast earlier this year. This is a result of higher spending since April, when the first lockdown easing permitted outdoor dining, in addition to a significant drop in saving as the economy reopened.

Deputy National Statistician at the ONS, Jonathan Athow, commented, “Household saving fell particularly strongly in the latest quarter from the record highs seen during the pandemic, as many people were again able to spend on shopping, eating out and driving their cars.”

However, the latest data suggests that growth is beginning to slow, with the July ‘pingdemic’ and current supply chain issues putting the brakes on recovery. The monthly growth figure in July was just 0.1%, a sharp drop from 1.4% in June. This was reflected in the Bank of England’s latest GDP forecast, which revised its predictions for Q3 growth down to 2.1% from a previous forecast of 2.9%.

Furlough ends

On 30 September, the Coronavirus Job Retention Scheme, or furlough scheme, which has helped to pay the wages of 11.6 million workers over the course of the pandemic, finally came to a close. For the estimated one million workers still being supported by the scheme in September, the future is uncertain. Forecasts from the National Institute of Economic and Social Research (NIESR) and Dutch financial services firm, ING, in August, suggested that the unemployment rate will rise following the scheme’s end, with NIESR predicting that it will rise to 5.4% and ING predicting an increase to 5.5%. This is in contrast to the Bank of England’s own predictions, with the central bank stating it believed that unemployment has now peaked and will continue to fall in spite of furlough’s end.

Renewal of other job support schemes

Rishi Sunak used his Conservative Party conference speech on Monday to commit £500m to renew other job support programmes set up during the pandemic. Specifically, the Kickstart Scheme, which subsidises eligible jobs for young people aged 16 to 24 on Universal Credit, will be extended to March 2022 and the Job Entry Targeted Support (JETS) scheme, which helps long-term unemployed people on Universal Credit, will be extended until next September. Further details will be confirmed at the Spending Review on 27 October, when it is presented alongside the Budget. The Chancellor spoke about how the government’s recovery approach focuses on “good work, better skills and higher wages.”

Market news

Some global indices recovered losses on Tuesday, after several large technology firms lost ground on Monday, as concerns intensified over increasing raw material prices adding to inflationary pressures. Markets received a boost as oil prices headed to multi-year highs, following the Organization of the Petroleum Exporting Countries, Russia and their allies’ (OPEC+) decision to continue gradually increasing output. 

Rapid house price growth continues in September

The Stamp Duty holiday ‘taper’ threshold ended on Thursday in England and Northern Ireland, with the nil-rate threshold of £125,000 reinstated for the first time since July 2020. Predictions of a house price slump have not been realised so far, despite the maximum tax savings falling from £15,000 to £2,500 from 30 June. Double-digit house price growth continued into September, with Nationwide house price data calculating that prices had increased by 10% year-on-year.

Those trying to get onto the property ladder continue to face the difficulty of raising enough money for a deposit, with a 20% deposit on the average first-time buyer home now standing at a record 113% of gross income. For those who have raised the funds, there is a silver lining: mortgage rates are currently at record lows, with some lenders introducing mortgage deals under 1%.

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.