As we move from a climate crisis in July and an energy crisis in August to an exchange rate crisis in September, there is little wonder that many commentators are predicting catastrophe over the next 12 months. But as we know from the past nine months, a lot can change in a short time.

James Foster

James Foster

There is certainly a downside scenario where the property market is severely affected, but that is not how I expect things to pan out. The intervention by the government in the energy market will help lower inflation, and while the outlook remains volatile at present, we can hopefully avoid the more serious economic consequences.

Amid the recent uncertainty, property investors and occupiers have deferred decisions where possible and some deals have been aborted, especially for larger investments where yields have been exceptionally low by historical standards.

I expect some hesitation in the market to persist for the rest of the year and until interest rises have levelled out. Over the past 10 years, property investors have benefited from increasing asset prices and ultra-low interest rates. This should leave them able to withstand a short and mild recession, which seems likely. We are in a period of correction and with the added effects of reduced consumer spending and potentially higher interest rate costs, it is not an easy time for investors, consumers or businesses.

Much of our business, at commercial property agency Eddisons, is with smaller and medium-sized property investors and businesses. In this part of the market, however, we continue to see occupational activity being maintained, reflecting a general lack of supply and resilient demand.

Demand for office space continues to be supported by businesses adapting their occupation in response to homeworking trends. Most offices continue to be underused and it will be interesting to see how the market evolves. In the heatwave, we saw air-conditioned offices busier. Over the winter, we could see warmer offices attract more people full time and, conversely, some businesses may take the opportunity to fully embrace remote working.

Similar uncertainty applies to retail and leisure destinations, which may see increased footfall as people seek to mitigate the costs of heating. Whether such businesses can withstand the cost pressures, we will have to see.

In terms of the industrial and logistics market, it is unlikely that a fall in consumer spending will have a noticeable effect on the Amazons of this world. The inflationary costs on small businesses, coupled with shoppers needing to be savvier, can only play into the hands of online retailers, although their growth will be more modest.

Another black swan

My biggest fear would be that we see another black-swan event. We’ve had a pandemic, a war in Europe and surging inflation. The last thing we need is something else on top. More positively, I would expect to see markets adjust and on energy, for example, the dynamic effects of increasing costs have to result in reduced demand as individuals and businesses change their behaviour to mitigate higher prices.

We also have a new prime minister, so what can the government do? We have seen lots of headlines on tax reduction and talk of supply-side reform in planning and energy supplies. All may help the property market in the longer term, but businesses and investors want to have a predictable economic outlook.

That can only come from greater stability in the energy and financial markets and a stable international environment. But while the current heightened uncertainty persists, there are opportunities for those with cool heads.

James Foster is finance and operations partner at Eddisons