Autumn budget 2021: What does it mean for real estate?

Rishi Sunank laid his post-Covid recovery plan on the table for all to marvel, recoil in horror or swoon at – depending on your political persuasion. 

Taxes, business rates and inflation were some of the subjects that would have raised an eyebrow or two, but what does all this mean for property and the flow of capital in real estate?

Fortunately we are able to pick the brains of some of the foremost research analysts in the industry, so we can shed some light on how it will impact the property sector. 

Residential property 

Chris Druce, senior research analyst, UK residential 

Today’s Budget set out the road beyond the pandemic against an improving UK economic picture. It did so without introducing any significant speed bumps for the UK housing sector, which should continue its journey back to normality in the coming months, with the frenzy of the stamp duty holiday fading in the rear-view mirror. 

After what is set to be a record year for UK property transactions, supply should gradually improve in the coming months as sellers capitalise on the market’s current strength, and incremental interest rate rises help to moderate the high demand that has persisted since the market reopened. We expect house price growth to finish 2021 in the single digit range, as the property market returns to more seasonal patterns.

Residential development 

Anna Ward, senior research analyst

The government’s confirmation of a £1.8bn brownfield fund will help alleviate some of the impact of the pandemic on new homes output. As ever, the devil will be in the detail. There are questions marks over how quickly this can be rolled out and which areas it will target to help ease housing shortages.

Retail: business rates

Stephen Springham, head of retail research

The business rate issue has been ducked. Absolutely no mention of any online tax to level the playing field within retail and only some very minor tinkering around the fringes. More timely, three year reviews was an absolute given, the bare minimum, and even this does not take effect until 2023.

Relief for properties investing in green initiatives (e.g. solar panelling) speaks to the ESG agenda, but will not alleviate the problem. And the one year 50% reduction (capped at £110k) may ease the burden slightly (and temporarily) for local and independent operators, it will not move the needle for most multiple operators, who are actually the mainstay of most high streets.

The conundrum on business rates persists: the system is antiquated, not fit-for-purpose and needs total reform. But there is no straightforward solution and if business rates are cancelled altogether, the Treasury still has to find a way to fill a £26 billion black hole. A straight online tax will not work as most retailers are multi-channel, and will therefore equally harm those it is designed to help (physical retailers with an online business). Also, it will open up no end of accounting and operational loop holes. He could ‘go after’ the pure plays such as Amazon, but he is unlikely to want to upset this particular apple cart. And so it has proved.

From a retail perspective, reform has never been so underwhelming.

Capital markets

Victoria Ormond, head of capital markets research

A notable part of the Chancellors Budget was a focus on innovation, mentioned 17 times during the speech. Last year's Active Capital research identified the importance of innovation for commercial real estate, being a key driver of growth and underpinning the wealth and population needed to support, not just life sciences, but the full suite of commercial real estate sectors.

Analysing over 100 variables across 288 global cities, from quality of universities and their spillover effects, to number of research institutions and allocated biomedical funding, as well as evidence of motivation to innovate, we identified those top global innovation-led cities. Our analysis found that London is the number one innovation-led city globally, supporting multiple university anchored innovation hubs across the core and fringe of the capital. However, we also identified 19 other regional cities which are above average globally for innovation and also of an investible size for global commercial real estate investors.These cities are expected to benefit from the budget.

We have also locally identified smaller towns in and around the M25 which are also strongly positioned for innovation. The message being that the announcement of investment in innovation is an opportunity across commercial real estate.

Agriculture

Andrew Shirley, head of rural research 

Rishi Sunak’s budget speech today was labelled a missed opportunity by rural organisations such as the CLA and Tenant Farmers’ Association after the Chancellor failed to introduce any measures that would help level up the rural economy, ease the countryside’s affordable housing crisis or revitalise the tenanted farming sector.

Rural businesses, however, will benefit from some of Mr Sunak’s much-touted munificence, which included freezing fuel duty, a one-year 50% business rates discount for retail, leisure and hospitality businesses, and business rates exemptions and reliefs in England for eligible green technologies that help to decarbonise non-domestic buildings.

An increase of £625 million for the Nature for Climate Fund was also confirmed, as was an extension of the upgraded £1 million annual investment allowance until March 2023. It had been due to fall back to its previous level of £200,000 from January 2022.