The challenge ahead is no different to the one that has plagued the UK and other economies since the start of Covid-19: how to invest in the country and reduce the debt burden when tax revenues are already high, and cuts in public spending are culturally unacceptable to a Labour government.
From a property perspective, the pre-election period was typical, with a strong focus on housing in the manifesto and limited attention to commercial property apart from a few brief comments on the business tax regime. However, what commercial property investors and occupiers want from the new Labour government is quite simple: an environment focused on stability and growth.
Over the past few years, there have been many reasons why investors and businesses have postponed capital expenditure decisions, some of which were related to a weakening economy, others to soaring borrowing costs, and some to growing political instability. With inflation returning to target levels and GDP growth outlooks looking towards a steady recovery in the UK economy for the remainder of 2024 and into 2025, the next factor investors and businesses will look to for a recovery is a stable and predictable political environment.
The first budget of a new government is always a statement of future intent rather than a manifesto promise, and we expect to see greater clarity on tax and spending when the budget is published. Labour knows it needs to provide an environment in which economic growth can recover (largely because it is the least painful way to raise overall tax revenues). The difference between Labour and Conservative tax proposals published before the election was relatively small, so this first budget is unlikely to pose any major surprises for the business sector.
Commercial real estate decisions are often made over a relatively long time frame, so the lack of surprises is probably the most important policy trajectory we can expect over the next five years. If political instability ends up being outside the UK for some time, the UK may even benefit from appearing more stable than other countries in the eyes of global real estate investors, something that has driven increased investment into the UK in the past. Prime yields are already starting to firm in many sectors, but so far investment activity has been held back by both hopes of a recovery and recession-hunting. With the political issues resolved, now may be the time to buy property in the UK.
Labour's manifesto is titled “Change” and for many who voted for the party the prospect of a break from the past 14 years has proven politically appealing, but for those planning medium to long term property decisions a boring policy may be the best option.
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