Judging by a notable recent change in the volume, tone and content of my inbox, and given the remarkable stability of UK occupier markets, in a setting of a relatively major reset in asset pricing, I am tempted to conclude that "animal spirits" is returning to the UK commercial property sector. By "animal spirits" I refer to what John Maynard Keynes described as "a spontaneous urge to action rather than inaction". Given the ongoing visible weight of global capital looking to be placed, the strength of this urge is hard to dismiss.
For UK commercial property, which despite a decade of political instability, retains its position as a global investment destination, this is all about economic sentiment and, above all, investor confidence. Hence for UK property in the post Truss-Kwarteng fandango period, the Spring Budget must, above all else, be about stability. Regulatory stability (present and future), interest rate stability and price stability. These are pre-eminent and trump any sector specific measures (for example commercial rates, stamp duty thresholds) in determining the fortunes of UK commercial property as a whole.
Political constraints militate against the government’s overt use of fiscal policy to manage inflation. Inflation management remains firmly the remit of the Bank of England. Hence, the possibility of any tax cuts is likely to be dismissed under the cover of "contributing to inflation", save perhaps for measures to encourage early retirees and the economically inactive back into the labour force to improve productivity growth. Likewise, further tax rises (deflationary) look unsustainable from a political and economic perspective.
In contrast, controlling government debt levels is one of the surest ways to relieve pressure on interest rates and avoid any "crowding out" effects that may limit investor access to loanable funds. This is poignant especially as stimulating investment in productivity remains challenging for a prime minister who sees this as a key to the mid-term development of the UK economy, not to mention what might remain of the government’s "levelling up" commitment.
The real story is less the Spring Budget itself which may prove benign, but rather the relationship of this budget with Bank of England monetary policy. How this plays out on 23 March when the Bank meets to announce its latest rate policy remains to be seen, especially given the latest instabilities arising from the US banking system. Nevertheless, this potential "one-two-Treasury-BoE" punch should make clear the path of UK regulatory policy, interest rates and price stability, at least until the next election. Given a growing belief that a Labour government would be likely to follow increasingly moderate policies, this one-two punch may be enough to break the short-term impasse in recovery of UK business and consumer confidence in general, and UK commercial property investment in particular.
Dr Walter Boettcher, head of research and economics, Colliers