Our Thoughts

General Election update – the outlook for real estate

With only two days left until the General Election, senior economist Sukhdeep Dhillon takes a look at what the polls are saying, the parties’ election promises, and what the vote means for property.

Despite some narrowing in the polls, the Conservatives still lead

The polls suggest the Conservatives are almost certain to increase their majority – the only question is by how much. Latest estimates (4 June) suggest the Conservatives will get around 44% of the vote share, with Labour trailing behind on 36%. This is an improvement for Labour since the election was called, when its support stood at around 26%, with the Conservatives seeing theirs peak at 49%. So, the gap has narrowed meaningfully.

Could the polls be wrong?

The 2015 election and the EU referendum certainly showed that the polls could be wrong. But the pollsters have won back a bit of credibility of late calling both the French and Netherlands elections correctly. And the recent by-elections and local elections in the UK have also gone as predicted.

The manifestos: ‘more of same’

Unsurprisingly, there are no radical differences from the March Budget in the Tory’s approach to fiscal policy. The manifesto makes a commitment to meet the government’s existing fiscal targets, to bring the structural deficit below 2% in 2020-2021, have government debt falling as a percentage of GDP in 2020-2021 and to balance the budget at the earliest possible date in the next Parliament. Beyond the broad fiscal stance, some modest tax and spend policies have also been unveiled.

Labour’s manifesto sticks in principle to its fiscal credibility rule, that the government should balance the current budget but should, in theory, have no limits on borrowing to invest. Labour’s commitment to increase current spending by £48.6bn by 2021/22 is ‘fully costed’, matched by an equal rise in tax revenue. In order to fund these commitments, Labour plans on raising £19.4bn by hiking the rate of corporation tax from 19% to 26%, back to its 2011 level but below its 1999-2008 level of 30%. The manifesto also commits to £250bn extra in capital spending to be spent over the next 10 years via a National Transformation Fund, and the nationalisation of the UK’s rail, utilities and water providers and the Royal Mail.

Implications for real estate

While the prospect of a General Election certainly adds to market uncertainty there is little evidence that UK elections impact investment levels, or the confidence of occupiers and developers in the period leading up to the vote. This is reflective of the fact that manifesto policies, in particular related to real estate, are typically highly general in nature and also take time to be implemented.

Factors that make the UK, and particularly London, a good place to invest in the long term, no matter what colour party constitutes power in Government, are unlikely to change overnight.

Recent figures show that Central London had an overwhelmingly positive quarter, accounting for £4.75 billion across all sectors, 17% above its long-term average and a substantial recovery from the decline recorded immediately post-EU referendum. Much of this total was driven by high value office transactions to overseas investors, indicating a clear trend towards trophy asset and high capital acquisitions.

Demand for offices in Central London remains high, especially from overseas. As a result, the strength of the Central London investment market in the first half of this year will be driven by the availability of stock.