Billionaires 1 Millionaires 0, the office recovery spreads and rate hike fever grips the City
Making sense of the latest trends in property and economics from around the globe.
5 minutes to read
Taxing the wealthy
The global response to the pandemic and the subsequent surge in asset prices helped swell the world’s very wealthy population ($30m+ net worth) by 2.4% to hit 520,000, according to The Wealth Report 2021. Our research in that report confirmed that private bankers and wealth managers were anticipating that wealth inequality would come under greater scrutiny as a result.
The most high profile reaction has been seen in the US. President Joe Biden's proposals to raise $1.5 trillion by taxing the rich were first unveiled back in April. Six months later, much of that plan is on the cutting room floor, largely due to razor thin voting margins and some Democrats reluctance to back taxing the unrealised gains of billionaires, according to the NYT.
Instead, the President rolled out a new "surtax" on income that will effectively raise the top tax rate on ordinary income to 45% for the highest earners. In the end, writes the NYT's Neil Irwin, it was the millionaires versus the billionaires, and the millionaires lost: -
"Jeff Bezos, the Amazon founder who is worth nearly $200 billion, would see little change in his highly favorable tax situation. Andrew Jassy, who succeeded Mr. Bezos as chief executive and received about $36 million in compensation in 2020, is likely to owe more in taxes if the Democrats’ framework becomes law."
The Budget
Wednesday's UK budget was underwhelming from a property perspective - you can read our take here.
The biggest issue in the days leading up to the announcement - reform of business rates - has been ducked, says Knight Frank’s Stephen Springham. No mention of any online tax to level the playing field within retail, just some minor tinkering around the fringes. Relief for properties investing in green initiatives (e.g. solar panelling) speaks to the ESG agenda, but doesn't go far enough, Stephen adds.
Meanwhile, confirmation of the £1.8bn brownfield fund will help alleviate some of the impact of the pandemic on new homes output, but there remain questions as to how quickly this can be rolled out and which areas it will target to help ease housing shortages.
Perhaps most significant for property is the scope of spending and the impact it will have on inflation. This morning's Times suggests the chancellor's splurge may have forced the Bank of England's hand before its decision on the base rate next week. Bank of America is now forecasting a hike next Thursday followed by another in February.
The office
More evidence of a sustained recovery in the London office market from Shabab Qadar.
Take-up was just 12% below the 3 million sq ft quarterly average during Q3, let by above trend take up in the West End. Availability of space fell for the first time since Q4 2019, led by a 552,000 sq ft contraction in the City Core submarket.
The flight to quality continued and prime rents in both the City Core and West End Core submarkets have now surpassed levels last seen at the onset of the pandemic. Interestingly, however, Q3 saw a significant rise in take-up of second hand space, suggesting the recovery is becoming more broad based.
We're seeing similar themes in the wider South East office market. Take up during Q3 remained 27% below the 10-year average, but the deal rate is picking up as occupiers seek to lock in the best space amid falling availability. Seven deals of over 50,000 sq ft have concluded so far this year, which is the highest number of deals of this scale since 2016.
Supply chains
US economic data for Q3 and the results of Amazon and Apple have revealed the pressure exerted on corporate America by chaos in global supply chains.
The US economy expanded 2% on an annualised basis during Q3, marking the weakest period of growth since the onset of the pandemic. There were various signs of supply chain issues in the data. The FT picks out spending on long-lasting goods, which plunged 26.2% due to a drop-off in auto sales, which have been hampered by semiconductor shortages.
Product constraints cut sales at Apple by $6 billion, again due to chip shortages. Meanwhile, Amazon expects its Q4 to be hampered by several billion dollars of additional costs due to labour supply shortages, increased wage costs, global supply chain issues and increased freight and shipping costs.
Absolutely net zero
Net zero has come into sharp focus in recent weeks in the run up to COP26, highlighted by a string of government strategy announcements and actress Joanna Lumley's calls for wartime rationing to fight climate change.
But what does it all mean for property? On this week's Intelligence Talks podcast, Anna Ward speaks to Imperial College London professor Richard Templer and Knight Frank’s head of sustainability, David Goatman.
As well as Lumley’s climate credits and Nordic homes, they discuss what’s missing from the UK government’s latest net zero policies, why surging energy prices are such a problem for property, and how robots can help retrofit the nation’s housing stock. Listen here, or wherever you get your podcasts.
In other news...
The Autumn Series of The Wealth Report 2021 kicked off this week with the report's editors Flora Harley and Andrew Shirley exploring the latest trends in global economics and luxury investments. With cities springing back into life in many parts of the world and lockdowns continuing in others, the team is investigating how all this impacts investment into the built environment - to watch this week's event on demand, and to sign up for the next in the series, click here.
The second episode of the Commercial Conversations webinar series looks at how the film and TV studio market has fared during and after the pandemic, with surging demand for new content creating new opportunities in the property sector.
Elsewhere - China limits construction of 'super high-rise buildings' (BBC), households face a squeeze from inflation and flat wages (Telegraph), lenders raise mortgage rates as inflation fears take hold (FT), Bank of England considers capital rules for banks to cover climate risks (FT), Lagarde pushes back on eurozone rate rise bets (FT) and finally, Evergrande meets coupon payment ahead of Friday deadline (Reuters).
Photo by Sander Crombach on Unsplash