Economic Overview
In usual times the spring trading period in the real estate markets is one of the busiest of the year and whilst in general the transactional environment could not be described as quiet, there is a degree of frustration that in some sectors, and particularly with regards to those larger assets, life is not moving more quickly.
An uptick in construction activity and in the retail sector has improved the outlook, but the impact of public sector strikes and higher interest rates are a brake on activity.
In terms of the Economy, relative stability has returned to the UK, although there have been bumps in the road in recent weeks.
The collapse of Silicon Valley Bank (SVB), the subsequent rescue of Credit Suisse and the continuing reverberations in the financial markets have highlighted problems caused by higher interest rates after such a long period of low level rates. At times like this, the markets naturally look for problems elsewhere and banks and lenders as a result are more cautious. They are continuing to lend but there remain challenges to face including lower valuations and distress in some areas, but also some positives.
The economy is flat but is performing better than thought and now expected to avoid recession as forecasts are increased. An uptick in construction activity and in the retail sector has improved the outlook but the impact of public sector strikes and higher interest rates are a brake on activity.
The big issue is that inflation persists and is proving a particularly sticky problem despite the Prime Minister's pledge to halve inflation by the end of the year. In March the CPI rate fell for the month from 10.4% to 10.1%, disappointing observers expecting a greater fall and prolonging the BoE headache as it struggles to control the rate of price increases. It is likely now that there will be another base rate increase in early May perhaps to 4.5% and that will possibly be the last but there are no guarantees.
The occupational markets are performing well with good levels of demand witnessed and likewise smaller lot sizes remain liquid driven by cash and demand from private investors.
Inflation is expected to fall markedly by the end of the year. When, and if this takes shape, it will confirm a downward trajectory for interest rates and the subsequent cost of debt. The reality is however that many in the market need to see this starting to happen, and inflation under control, before they jump back in. At present for a range of property assets and in particular those larger lot sizes there is a stand-off between buyers and sellers with differing aspirations of value.