October Budget weighs on sentiment

Well, the noise of the General Election has quietened but we are now faced with the harsh reality of likely fiscal changes, with the new Government indicating some “pain” to come whether we like it or not. Without getting drawn in to party political comment, it does seem that those “with” will get hit the hardest with Capital Gains Tax (CGT) and pensions being the current talking points - the former of which could impact on commercial property sales in the short to medium term.

Indeed, those with commercial property assets held personally and with no real need to sell are likely to hold on for the foreseeable future to avoid a painful hike in disposal tax. Likewise, there will, inevitably, be some form of pension adjustment and re-evaluation.

This also begs the question as to whether those with sizeable land holdings are likely to be encouraged to sell - which may not help the Government’s “commitment” to delivering around 1.5m homes in the next five 5 years. And that’s setting aside addressing the immense problems of the current planning system. 

The investment market has been subdued since late 2022, then with 2023 sentiment linked to interest rate speculation and availability (or not) of bank lending. With 2024 CGT speculation likely to affect private sales, we expect the market for smaller investment stock to be subdued for the short to medium term.

The appetite for larger investments, typically in excess of £5 million, has certainly improved and funds appear to be interested in progressing acquisitions, albeit transaction times are still woefully long, with everything analysed in granular detail.

It will come as no surprise, yet again, that industrial property still leads the way in overall rent and capital performance and it remains the strongest sector in the East and East Midlands region - with the exception of the Cambridge market which leads the way, nationally for Eddisons, in terms of the R&D/laboratory & office sectors.

Freehold demand for industrial accommodation remains strong due to a lack of overall supply. However, it’s reasonable to assume that there may be an element of ‘‘shift’’ towards leasehold as the costs of borrowing begin to come into play.

I suggested six months ago that there are signs that office occupancy is starting to recover across the country.  This remains the case in certain areas but, in overall terms, the market for offices (excepting Cambridge) remains very hard indeed.

Owner occupation for smaller buildings has improved in general terms, but the lettings market is otherwise proving very tricky. Most landlords are now accepting flexible terms and have increased, and in some cases, substantial incentives to try and attract office occupiers.

Retail commercial property remains tough, and that’s all can be said for a sector that has taken a hammering over the last decade. Nevertheless, there is an argument to say that smaller, more prosperous market towns are faring reasonably well and this sector remains popular for local smaller investors and smaller pension funds - subject to what happens after the Budget Statement on 30th October.

Eddisons is not involved with the residential sector so it is difficult to substantiate comment, but we take the view that the market at the higher end is slow but steady and at the smaller end relatively active. Over time, people will get used to higher mortgage rates and there may still be a period of re-adjustment, especially if the Government gets stuck into residential CGT as well - a move that may prove incredibly unpopular, but relatively easy to impose.

Stamp Duty Land Tax (SDLT) is another area to watch, especially at the higher end, although most in the market will not worry too much about increasing the tax on overseas buyers, save, perhaps those in the London market.

This article is reproduced by kind permission of Business Weekly in which a version recently appeared as part of the publication’s monthly ‘’Scaling up in association with Eddisons" feature.