As we trickle back to work, we should prepare for an extraordinary 12 months ahead in politics, the economy and real estate.
Let’s start with the closest and most open general election for decades, with more people taking an interest and willing to vote for different parties. Businesses will have to get used to the uncertainty of coalitions and alliances.
I understand that permanent secretaries in the civil service are planning for six different result scenarios, the most ever. My prediction is a minority Tory government, with an informal alliance of support from UKIP and Ulster politicians. Westminster would be much enlivened by the arrival of Messrs Farage and Salmond, in which case prime minister’s questions could become compelling viewing. UKIP will secure more MPs than the Liberal Democrats. The leaders of two of the current three main parties will resign by the summer holidays and Nick Clegg will probably have a job in Brussels by the year’s end.
Turning to the economy, UK plc should grow by around 2%, curtailed by greater austerity and declining export markets. Though a distinct fall from the 2.6% expected for 2014, it will remain perhaps the highest growth rate of all the major developed European nations.
The Eurozone will endure another torrid year of feeble activity, and will be lucky to avoid deflation. Another crisis is likely soon, as the European Central Bank fails to act fast enough on printing money. The situation is now worse than the 2012 crisis as debt ratios have grown, even though other economic measures have improved. Greece has debt of 175% of GDP and Italy’s debt continues to climb to 130% of GDP. Without meaningful growth, debt ratios will continue to climb, then the only ways out are default, inflation or leave the euro.
No serious economist is predicting inflation in the Eurozone any time soon. It is thus almost inevitable that Greece must leave the euro at some point, rather than default. Italy has elections and its three main opposition parties want to leave the euro. Anti EU sentiment will continue to rise in the UK and across Europe as the EU fails to heed populist and business desire for reform.
Now for the good news: 2015 could be a vintage real estate year. Base rates will remain below 1% for this year and probably below 2% for the next five years. Credit will become cheaper and more available. The oil price will average below $75/barrel for the year, which will help keep a lid on inflation.
With the UK being a relatively high-growth economy, so labour will continue to arrive in large numbers from the rest of the EU. This means continuing very low wage inflation despite economic growth, with upward pressure on house prices at the national level, which will outperform the London residential market. The capital will be held back by electoral uncertainty and fear of some variant of the inevitable mansion tax.
Global investment capital will continue to view UK real estate as a safe haven. The main IPD index will again outperform equities, and FTSE 350 listed real estate companies will outperform the main FTSE index for the fourth year in succession. It will be a good year for commercial property IPOs as investors chase reliable high income in a deflationary environment. Likewise the national listed house builders will outperform.
Prime West End new office rents will go over £175/sq ft. One only has to look at the paucity of to-let boards in the West End. Buy shares in companies that make smaller desks and hang on to those Great Portland and Shaftesbury shares.
Outside the capital, the lack of new regional development despite economic growth will lead to lower vacancy levels, smaller incentives and rental growth.
So, a tantalising year in prospect: we can enjoy the real estate market amid a cocktail of other uncertainties.
Richard Tice is CEO of Quidnet Capital (and former CEO of CLS Holdings)