“Air Pocket” Warning After Better Than Expected Election Result

Posted on 11 May, 2015 by Cliff Goodwin

Although far better than a shifting Government coalition, one of Britain’s biggest real estate consultancies is warning the commercial property industry to expect “air pockets” triggered by political uncertainty.

Air pocket warning after better than expected election result

According to a commercial briefing issued by Knight Frank there is good reason to believe the UK economy — that appeared to falter in the run-up to last week’s election — will now continue to strengthen.

“This is good news for both the commercial leasing and investment markets,” says the statement.

“However, there remains a great deal of political uncertainty as a result of the upheavals that resulted from the election … These will influence, but not derail the property market.”

The biggest question mark hangs over the Scottish National Party’s overwhelming victory that, claims the agency, 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,” it says, “This comes with the caveat that some investors actually saw last year’s referendum as an opportunity to buy.”

The Conservative majority also 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,” warns the briefing document. “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,” it cautions. “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.”

Knight Frank believes that over the next five years, this climate of political uncertainty will at times cause market confidence to drain away temporarily, with some investors deciding to wait until after an upcoming referendum before buying — other might shelve expansion plans because a sudden fall or rise in sterling hits profits.

Summing up, the briefing says: “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.”

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