Although Barack Obama has only just stood down from office and the UK, technically, remains a full member of the European Union, there is no way any forecasters at the start of 2016 could have predicted the relatively positive economic environment within which we now find ourselves.
The FTSE 100 is at record highs and, perhaps more encouragingly, the more “local” FTSE 250 strides on. Recently published British Retail Consortium/KPMG Research figures showed like-for-like sales increasing by 1% in December 2016 compared with the previous year. The UK economy grew by 0.6% in the third quarter, an increase from the original estimate of 0.5%.
There have been numerous encouraging economic reports. The services sector has just reported its strongest performance for 17 months. UK manufacturing seemed to end the year in more positive territory, with activity reportedly at a 30-month high, and even UK construction has reported an improving order book, with the fastest growth for almost 12 months in December.
Employment continues to increase. Unemployment is at an 11-year low of 4.8% and there are now 31.8m people in work – nearly 350,000 more than the previous year.
So what does this tell us? Perhaps it is simply that we respond best if we are braced for the worst. It appears that yet again the UK is much more resilient and/or that life in this new world order is just not what people had expected.
As for the real estate environment, this collection of good news, especially more jobs and more investment, should instil confidence for the year ahead. Low interest rates and the weakness of sterling will make UK real estate a medium to long-term buy.
But, as ever, there are plenty of risks. At present the greatest, to my mind, is the government’s lethargy and its apparent lack of engagement with the real estate industry. With transaction costs for residential and commercial property already at punitive levels, trading volumes – especially in housing – will be constrained at a time when the need for greater UK housing supply has never been more obvious. Having taken the vibrancy out of the market, this will stifle supply at every level unless great care is taken.
With president Trump in situ and Article 50 in motion, there may be disruption. While we would expect UK-based banks to release some surplus office space in the event that financial passporting forces them to move jobs to Europe, we see the impact coming in 2019 or 2020, due to the long timeline involved with relocating large numbers of trading staff.
Moreover, the development pipeline is limited at present, which means less new-build supply arriving in those years. Therefore, I see these two opposing supply pressures neutralising each other.
It is clear to me that what has been demonstrated so far is that UK business and its people are resourceful and well able to respond to challenge.
There probably hasn’t been a better opportunity in a generation for the UK to shine on the global stage. We must hope we continue to deliver and allow our confidence to build momentum.
Alistair Elliott is senior partner and group chairman at Knight Frank
