Confidence is tumbling. That’s the unambiguous verdict from the second quarterly sentiment index compiled by Estates Gazette and BNP Paribas Real Estate (p68).
The index mirrors anecdotal evidence in the market since the summer break, but based as it is on the views of more than 1,000 agents, developers, investors and occupiers, the results provide the most emphatic evidence that there are tough times ahead.
In June, with our first sentiment study, 59% of respondents described their confidence as unchanged. Only 15% said they were less confident, and nearly twice that percentage said they were more so.
How that’s changed.
Asked last month for their views, three times as many (30%) described themselves as less confident than those who said they were more confident.
Confidence fell in retail, in industrial and in offices. Fewer respondents expect to see speculative development return, fewer expect to see rents rise, fewer expect to see investment activity increase, and fewer expect to see values rise.
Worse, perhaps, is that, in every sector, more property professionals expect to see administrations and receiverships rise, and to see occupier demand fall.
Underpinning that leaking confidence is next week’s Comprehensive Spending Review.
Property is understandably worried. Many small residential landlords are fearful of the effects of benefit cuts. Retailers are wondering how much footfall likely public sector job losses will cost them. And many investors and developers who have been buoyed in recent years by public sector demand are scratching their heads about where new tenants may emerge.
Confirmation that almost 200 public bodies are to be abolished or merged will add to those concerns.
There are perhaps a couple of crumbs of comfort.
First, no one I speak to is taking seriously the letter, sent to all cabinet ministers last week by Cabinet Office minister Francis Maude, demanding that departments sign new leases only when they demonstrate that the deal is 25% cheaper than the market rate.
Ludicrous and unenforceable is the polite version of the verdict delivered by most in property.
Second, there is the possibility, a view perhaps gathering momentum, that the CSR may turn out to be a triumph of expectation management. If politicians paint an extreme picture of the severity of the cuts, anything that falls short will feel like a bonus.
Chancellor George Osborne and the Treasury have, of course, asked every government department to prepare forecasts for cuts of 25-40%.
But there’s been a reining back in recent days, with many headlines warning that the cost of renegotiating contracts and enforcing redundancies – and the threat of tipping the country back into recession – will push back some of the costs savings to later in the parliament.
The markets, we’re told, are relaxed about this, though in my experience seeking to second-guess market reaction is usually unwise. But those are crumbs. Certainty is the prize.
Talking of certainty, nowhere is that needed more right now than at CABE, the government’s advisor on architecture, urban design and public space (p45). It is not among the 200 public bodies that will be closed, but it is among 40 or so for which that remains a possibility.
Ministers confirmed this week that CABE would not be merged into English Heritage. But they would say nothing more than “proposed reforms” remain “under consideration”.
With the axe hanging, it is to chief executive Richard Simmons’ credit that he is telling staff to keep calm and carry on. So should the rest of us.
damian.wild@estatesgazette.com
