Election outcome beneficial for commercial property

11th May 2015

Sheffield, UK The slender parliamentary majority means the commercial property industry should expect air pockets caused by political uncertainty according to Knight Frank.

Stephen Hodgson, regional commercial head at the Sheffield office of Knight Frank, said: -As per usual the opinion polls got it wrong, and the Conservative party has won the election with a small majority. This is a far better result than the fractured Parliament of shifting coalitions we were led to expect. -There is good reason to now suppose the UK economy, that appeared to slow in the run-up to the election, can now resume a strengthening recovery. This will be good news for both the commercial leasing and investment markets. -However, there remains a great deal of political uncertainty as a result of the earthquakes that occurred overnight. These will influence but not derail the property market. -Firstly, the SNP's overwhelming victory has put the existence of the Union back on the political agenda. Last year there was a brief slowdown in activity in the Scottish market in the run-up to the referendum, which may be replicated in a future poll. This comes with the caveat that some investors actually saw last year's referendum as an opportunity to buy. -Secondly, a Conservative majority increases the chances of a referendum on European Union membership. If the prospect of Scottish independence caused a market slowdown, the idea of the UK leaving the EU will surely do the same, probably on a greater scale. Either a Tory backbench rebellion against the Bill or a vote sooner rather than later may be the best outcome. -Thirdly, the UK's deficit remains large, but if the Conservatives only have a slender majority they may struggle to force the necessary cuts through Parliament. If the financial markets suspect that not enough is being done to balance the books, sterling could fall in value. This will initially make UK commercial property look attractive to overseas money, but inflationary pressures would increase and bring closer the day that interest rates rise. -Over the next five years, we believe this climate of political uncertainty will at times cause market confidence to drain away temporarily. Some investors may decide to wait until after an upcoming referendum before buying; some occupiers might shelve expansion plans because a sudden fall or rise in sterling hits profits. -In short, we should expect the odd air pocket ahead, but overall the election outcome was probably much better for commercial property than one would have expected 24 hours ago.