COMMENT Strike up a conversation with anyone about business prospects and it will not take long to differentiate a Leaver from a Remainer, writes John Arnold, chief executive of Circle Property.
Remainers are a gloomy bunch and range from those unrealistically wanting a second referendum to those who accept the validity of the democratic vote, but see that as the beginning of our inexorable slide into economic decline, isolationism and, at an extreme, an eventual war in Europe.
But despite criticism of her approach, prime minister May is right in not showing her hand in Brexit negotiations. Anyone who has negotiated a commercial deal should know that you do not open negotiations with “We are desperate to buy the house/office/car and are prepared to pay the asking price but, at this stage, are only prepared to offer x.”
If the EU thinks we are obligated to reach a settlement, then it will hold us to ransom, so we must ease our way into negotiations and if necessary show Europe that unless we get a fair deal, we will be prepared to walk away from the negotiating table and go it alone.
There is nothing wrong with the “no deal is better than a bad deal” mantra which needs to be used sparingly but dangled from time to time.
As far as property is concerned it will, as ever, simply follow on the coat tails of Great Britain Plc but usually around six months later. And despite the best efforts of the governor of the Bank of England to drag us into recession by various gloomy but false predictions, he has bumped up interest rates for no good reason other than Brexit which was the reason he reduced them the last time.
In the meantime, the economy continues to maintain its momentum. And for so long as that continues to be the case, I believe that the property market will continue to prosper.
Our chancellor seems to be more on message now, as he has confirmed that all the predictions of mass unemployment have failed to materialise, with those in work now at an all-time high.
The only reason house prices are wavering (in London mainly) is due to the government’s decision to hike stamp duty. When will they learn that you cannot solve the problem by creating demand from first-time buyers by incentivising them with “subsidised” interest rates or other smoke and mirrors schemes? This simply fuels demand which, as every GCSE economics student knows, pushes prices up. The real remedy to the housing crisis is to increase the housing stock.
Governments love to blame developers for holding back development land, but surely they know that no developer is deliberately delaying development. Delays are invariably down to local planning nimbys and timid planning officers who fear for their jobs, all being leant on by councillors anxious to seek re-election and preserve the status quo.
The government is also perpetuating this by giving “local communities” the power to determine local planning issues. Indeed, much of planning now is not even determined by committee in open forum, but by planning officers under delegated authority.
The government’s decision to give owners the freedom to change from office use to residential was pleasantly surprising, but it missed a trick in not adding a precondition that larger schemes should include an affordable element.
Circle Property has long believed that this policy will boost provincial office rents as the secondary office stock gradually diminishes and occupiers find a shortage of choice.
Our experience in Bristol is a case in point. Five years ago we acquired a large office building in the town centre which was shortly to be two-thirds empty. It was bought off an estimated rental value of £10 per sq ft and a price of £53 per sq ft. Today that building, with minimal capital expenditure, is worth closer to £25 per sq ft and a capital value of £250 per sq ft.
That five-fold increase in capital value has been driven in no small part by the loss of about a quarter of the city’s secondary office stock to residential.
To a lesser extent, the same is happening in numerous cities around the UK and is the reason why Circle has been focussing on the regions and seen 30% growth in its net asset value over the past 18 months alone.
The only cloud on the horizon is not whether we have a hard or soft Brexit, but whether the negotiations drag on without any clear progress being made. The statistics show a marked decline over the past 12 months in office lettings.
The only real significant demand is (surprise surprise!) the government. There is as a logjam of decision making now creating a pent-up demand that will give the office market a further surge as and when our future is known.
Whether it has to be a hard or soft exit is not as material as the need for an early conclusion. The worst outcome is no outcome.
John Arnold is chief executive of Circle Property
