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The Autumn Budget: Fireworks or just smoke for commercial real estate?
Autumn Budget - 30 October 2024
Last Wednesday's budget was the most eagerly anticipated budget for decades. It did not disappoint. In a bid to close an alleged 'fiscal black hole', the Chancellor significantly increased taxes, borrowing, and spending. What's the impact of that for real estate?
Stephenson Harwood seminar
To explore the budget's key elements, the potential opportunities and challenges and to weigh up the implications for the outlook in 2025, Stephenson Harwood's real estate team hosted a seminar to analyse and discuss the contents of the budget. The Stephenson Harwood team were joined by a panel of industry experts:
- Paul Tebbit, Global Co-Head of Real Estate, Blackrock;
- Katie Partington, Legal Counsel, Firethorn Trust;
- Tim Vaughan, Partner, ART Capital; and
- Richard Croker, Tax Consultant, Stephenson Harwood
who kindly shared their insights on how the budget affects the real estate sector. The seminar was joined by several other clients and practitioners from across the industry who contributed their invaluable views to the debate.
The key issues that emerged were:
Cost of debt
Whilst it's still expected that the Bank of England will lower interest rates to 4.75% tomorrow, it's now generally expected that interest rates will fall less in the medium term than had been anticipated (projections are that they will be up to 0.5% higher than they might otherwise have been).
This increase in the cost of borrowing is likely to have some impact on investor appetite, but the mood in the market remains positive. Indeed, there has been growing sentiment over recent months that the market has turned a corner: banks are actively looking to lend and there are a number of other sources of capital that are looking for yield. That all suggests that the uptick in market activity momentum should continue.
Stability
Stability is important ingredient to foster enthusiastic investing. It was widely recognised by the panel that a calmer political backdrop and some certainty for the next five years will improve both the actual and perceived stability of the UK.
Platform for growth/attractiveness of UK as place to invest
Whilst the bond markets have shown real concern over the increased spending and taxation against a backdrop of anaemic growth, the view of the panel was that this would not deter international investors from investing into UK real estate. Indeed, some panellists noted that many investors were either unaware of the budget or unconcerned by it. The UK is an attractive investment market that has efficiently re priced over the last 24 months and now presents some real opportunities for investors both nationally and internationally.
Pensions
A particularly interesting aspect of the debate focussed on the hope that, in the medium to long term, the government may do more to facilitate and assist defined contribution pension schemes to invest in large scale UK real estate and infrastructure projects. There is a sense of waste that other countries pension schemes are tapping into this important, rewarding and stable investment opportunity and that we're missing a trick by not doing so. With some strategic changes, this is a real opportunity both for the industry and for the prosperity of the UK as a whole.
The key message…
The budget may have contained unwelcome elements, but the mood in the industry has turned a corner and remains positive. There are plenty of reasons for optimism and, as always, budgets create opportunities as well as pitfalls. Our expert team can help by working with you to identify how to achieve your objectives in a tax efficient way and to implement appropriate structuring.