2017 outlook: risk and opportunity amid uncertainty

  According to the FT’s economists’ survey, 2017 is likely to be challenging for the UK economy. Investment could slow owing to Brexit-related uncertainty, and a weak pound will make life more expensive for anyone importing goods and services. If this happens, subdued levels of commercial lettings are likely to follow. Rents and rental growth could soften, with a knock-on impact on capital values. So far, so cyclical – ups and downs are an integral feature of the CRE market and parts of that had probably reached a peak of sorts at some point in 2015. We were arguably due a correction anyway. What makes things more challenging is the amount of geopolitical uncertainty. The Trump presidency, unusually significant French elections and the ongoing risk of a China debt crisis – among many others – add up to a dangerous cocktail of economic risks. And then there is Brexit. While the government has given very little away regarding its plans for negotiations with its European counterparts, we and others representing the business community have begun to articulate what we feel is necessary in order to make Brexit a success. At the top of the list is a largely barrier-free relationship with the EU in terms of access to markets, capital and labour. While we must recognise the public desire for greater control over immigration policy, it is also clear that the UK will continue to rely on skills that are only available beyond its shores. We will advocate for a system that gives businesses access to the expertise they need, at the same time as supporting initiatives to develop UK talent. The final shape of our settlement with the EU will be the result of a negotiation and therefore is partly – arguably largely – out of government’s control. In the meantime, however, there is much it can and should do to facilitate and encourage the investment in our towns and cities which will be critical to future prosperity. As a long-term asset, CRE thrives in an environment of tax, planning and regulatory stability. The past few years have seen tremendous change and though some has been positive, much of it has added to the cost and complexity of investing in real estate. A period of relative policymaking calm is in order. We also look forward to seeing the impact of the new National Productivity Investment Fund. Deployed judiciously, this infrastructure spending could boost development and signal to global pools of capital that the government believes in the UK’s success. It is increasingly recognised that the housing shortage is hurting productivity and we are pleased that government values the contribution that build-to-rent is making in this area. With almost 80,000 new homes completed or in the pipeline, we expect BTR to become a well-established market in the next two years. Government should speed this up by reviewing SDLT thresholds and abolishing the 3% SDLT surcharge on second homes. Much is uncertain at the start of 2017 – and uncertainty always brings opportunity as well as risk. What is clear is the potential of our industry to help the government to capitalise on the UK’s strengths and create a positive future.   Melanie Leech is chief executive of the British Property Federation