Viewpoint - 06/12/2012

2012: a more challenging year than expected?

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In economic terms, 2012 was a significantly worse year than any forecaster expected 12 months ago.

The Chancellor’s Autumn Statement acknowledged this as he introduced a number of measures; including an increase in infrastructure spending, increase in capital allowances and an extended period of business rates relief for speculative commercial development, in order to try and boost economic growth.

Whether these measures will have the desired effect remains to be seen, but the forecasts from Oxford Economics and the government’s official forecasters, the Office for Budget Responsibility (OBR), show a return to modest levels of economic growth in 2013 after a -0.1% decline in 2012.

Emphasis on stimulating growth

The low levels of growth mean that the government has extended its fiscal austerity and deficit reduction programme through to 2018. With the government’s commitment to fiscal austerity, emphasis has to be on stimulating growth through monetary means.

One of the main stumbling blocks to growth has been the restrictions on liquidity caused by the low levels of bank lending. The government has tried to address this through the funding for lending scheme, but the UK banks remain wary of lending to SMEs.

The Bank of England’s own Credit Conditions Survey showed that the availability of credit to the corporate sector declined for the last three quarters. Tight wholesale funding concerns was the major factor in the decline in Q3, which was the biggest last year.

Banks will have to start lending to business

For economic growth to accelerate, banks will have to start lending to business. But there are other factors weighing on growth, such as the uncertainties caused by the Eurozone debt crisis, where despite a hiatus, many of the fundamental issues are yet to be fully addressed. 2013 is expected to be better than 2012, but the risks remain overwhelmingly on the downside.

Tough year for the property market

In line with the economy, 2012 was a tough year for the UK property market. The IPD numbers suggest that the all property total return will be less than 5%. This would put 2012 on a par with 2009, when the market returned 3.5%. The reason for this below average performance is the decline in average capital values, although this overall decline hides a marked regional divide in performance. A topic we have returned to throughout the year.

London continued to perform well, as demand from overseas investors led to a continued increase in the value of Central London office and retail throughout last year. This is in sharp contrast to every other region where values had declined throughout 2012. This is a function of the risk that investors are attaching to regional property, where the occupier market for all sectors remains under pressure.

Increase in availability of regional offices

Our latest numbers show that the availability of regional offices has, with the exception of Bristol, Glasgow and Edinburgh, risen in comparison with end-2011. Take-up through the first three quarters of 2012 looked to be on a par with 2011, but this has not kept up with the release of space by occupiers, and consequently the overall availability number has risen.


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