Don’t frighten the horses

Commercial property rarely makes for mainstream headline news and we’re thankful lfor that as we quietly get on minding our own and our clients’ business. We occasionally stick our head above the parapets at either end of the year with the annual round of reviews and forecasts but that’s about it.

At the outset of this year, commercial property professionals and pundits were in broad agreement that yields had most definitely peaked and that the volume of transactions we’d been enjoying were unsustainable and that total returns were set to fall – my own firm pegged the fall to 8.8 per cent. So far so predictable in Q1 and Q2 2016 then.

However, before the third quarter of the year had properly got underway, commercial property came crashing in to mainstream media headlines for five days in a row and not in a good way. I say ‘commercial property’ but what actually made the news was the suspension and closure of a number of funds which were invested in commercial property.

It was the funds that were falling down, commercial property is still standing. Alongside other property interests, thankfully. Expert property commentators and analysts were - and still are - at pains to point out that a commercial property fund is an investment vehicle and one not for the faint-hearted either. In the close world of any niche investment funds, it is easy for contagion and a herd mentaility to take hold.

Investors in all sorts of funds are getting spooked and some of those whose portfolios include commercial property funds are wanting to liquidise their investments and move on to other funds and other asset classes. Commercial property investment fund managers were left with little option but to suspend the funds while they sell the asset. It can take a long time to sell an office block, business park or a retail outlet, believe me.

The thought of Brexit has, understandably, made many people twitchy – just look at the pre-poll rock solid political careers it has ended but now some new careers have begun too. While the matter of the prime ministerial succession and the timescale has been settled earlier than first assumed, the financial markets reacted to uncertainty.

In those first weeks post-24 June along with the value of sterling falling, FTSE companies most exposed to UK business interests saw their share price drop more than those with more international exposure. There was much mention of housebuilders’ shares falling as if this was proof of a mass property Brexodus.

To make a connection between the closing of commercial property investment funds and a potential housing market crash á la 2009 is crass but some reporters whose business is not, ordinarily, the reporting of business can be forgiven in not appreciating the very clear distinction between commercial property and residential property.

Investors in the housing market in the UK are, in the main, those who live in their investment. The forces driving commercial property investment funds are very different from those governing the housing market, namely a fundamental shortage and a low interest rate environment in the case of the latter.

The economic and financial expert view is that whereas the credit crunch of 2008 and 2009 was a financial crisis with political ramifications, what we are experiencing now is quite the reverse.

Setting aside on what the actress Mrs Patrick Campbell was commenting when she said it, I am minded to agree with her when it comes to the present situation: “My dear, I don't care what they do, so long as they don't do it in the street and frighten the horses.”

Will Mooney MRICS
Partner
Commercial, Cambridge

EU referendum - Impact on the land market

Arable farmers in particular are desperate to see more sun because sunshine at this time of year is so important to help their crops yield heavily.

June was a relatively dull month and July did not look summery till this week so there are concerns that yields will be down on last year, which is almost inevitable because last year was in general a bumper harvest - albeit crop prices were low. 

On the upside the weakening pound following the EU referendum has helped protect UK farmers from recent falls in wheat prices on world markets as UK wheat has become comparatively cheap. 

This weakening of sterling on the foreign exchange markets is generally good news for farmers because it makes imports more expensive and UK exports more competitive.  This has generally helped UK commodity prices such as beef, lamb or cereal. 

Indeed the exchange rate is probably the single most important factor impacting on the profitability of farmers in the UK and so in the short term at least, the effect of the referendum is good news although the longer term impacts of an exit from the EU is far more difficult to predict.

So what impact is all this uncertainty having on the land market?  Well, early indications are that Brexit has had little if any immediate effect.  Having seen a surge in land values over the last decade, farmland prices had started to ease a little over the last six months as the impact of the massive slump in commodity prices affected farm incomes. 

But with commodity prices firming a little and concern that other commercial and residential asset values are likely to slip, farmland may once again become a more attractive investment for farmers and investors alike.

And with interest rates looking destined to fall this is making borrowing money as cheap as I have ever seen.  For example fixed term rates of up to seven years offered by the Agricultural Mortgage Company have fallen below the Bank of England Base Rate, which must surely indicate that the money markets are anticipating a rate cut.

So, in the short term the outlook for farming has become a little brighter and lets hope our late arriving summer weather stays.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Farmers and landowners to engage in the most important period of change in a generation

We find ourselves in a state of post-traumatic political shock following the referendum but whatever happens in Westminster it is the impact on real people that matters.

If we get it right, this could be a golden opportunity to forge agricultural and environmental policies that suit the UK.

But the risks are high as that prosperity will not depend only on new domestic policies but also on the success or otherwise of our negotiations about future relations with the EU and the wider world.

Therefore, now is the time for farmers and landowners to engage in what is will be the most important period of change in a generation and I set out below my take on some of the important issues identified by the NFU on which your opinion will be required.

•    Access to the EU single market; whether we like it or not the EU will continue to be our single biggest trading partner for agricultural produce for the foreseeable future.  Can we afford to jeopardise this relationship?

•    Currently we benefit from more than 50 trade agreements with countries around the world. Failure to replicate these quickly will be a problem.

•    Allied to the above is what access we are prepared to give to imports from the rest of the world? Some Brexiteers are supporters of real “free trade”, going it alone outside the single market. Is that what we really want or should imports be controlled to keep them in line with our standards of production?

•    Migration was obviously a key issue in the referendum but again we need to think very carefully about this.  Many farms need access to full-time and seasonal migrant labour in order to survive.  A points-based immigration policy that only allows skilled workers to come to the UK will not provide the workers required to keep our farms going but equally it seems free access for unskilled workers will not satisfy many who voted to leave.  This is a very difficult “square to circle” and the interaction of immigration policy with the negotiations for access to the EU single market is likely to be the biggest headache for our new political leaders.

•    On a more positive note leaving the EU does give us the opportunity to develop a new domestic agricultural policy which is adapted to our needs. However, our farmers will need an assurance that as part of this package they will still receive support so they can compete on a level playing field with our EU neighbours who will remain our principal competitors.

•    We also need to develop a rural development policy which focuses on enhancing our competitiveness and re-invigorate the agri-environmental schemes, on which we lead the EU but which have been devalued by changes to the Common Agricultural Policy. This gives us an opportunity to work with environmental organisations to devise better schemes that are workable for farmers and provide real benefit for our wildlife.

•    Finally we need a root and branch reform of European regulation and a re-assessment of the UK’s approach to issues such as GM crops.  This will be controversial in some quarters but we need to re-assess the balance between scientific evidence and the precautionary principle which is currently deployed in the EU.

Clearly there will have to be compromise which is not going to keep everyone happy, but whatever happens the NFU, CLA and other industry leaders need your input now in to this vital debate so they can enter into meaningful dialogue with government over the coming months and years.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Hard reality has kicked in over the impact of Brexit on our farmers

It is now critical that the deep divisions of the past are healed as quickly as possible and all our efforts are focussed on negotiating the best deal possible for our exit from the EU in parallel with building relationships with the rest of the world. This will be no mean feat and in the rural context it requires focus on the following areas very quickly.

Trade - We need to secure tariff-free access to the EU for all UK agricultural and other products of our rural economy. We also need to replace all trade agreements that now exist between the EU and other nations, and attempt to develop new opportunities worldwide. We must protect ourselves against cheap imports from outside the EU, particularly where standards of production do not match our own.

Agricultural support – The Common Agricultural Policy payments which farmers now receive from the EU will be phased out. They represent approximately 55 per cent of an average farmer’s income and even if they are replaced by UK-based support the timing and nature of this support needs urgent clarification.  Allied to this we need urgent clarification on the government’s UK Agricultural and Land Use Policy which has been largely devolved to the EU. This will need to be in place before we leave the EU because the agricultural industry cannot cope with a pregnant pause between the abolition of one system and the introduction of another, which in my experience often happens.

Labour – We must ensure that farmers can continue to employ the critically important labour force that is drawn predominately from EU member states. About 65 per cent of agricultural workers are currently non-UK EU citizens and this rises to 80 per cent for seasonal workers. This workforce cannot be replaced by UK citizens and its loss would have a profound impact on many farms.

It will be a huge task to sort out this short rural wish list alongside all the other wider ramifications that this vote will have on our economy and society at large.

To achieve this our country will need a leadership team which can unite a deeply divided society at home and at the same time fight tirelessly for our best interests abroad.  It remains to be seen whether such a leadership team exists among the Brexiteers who have brought us to the brink of this brave new world.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

The beauty of the binary

Leave or remain?  In or out?  Left or right?  Right or wrong?  Good or bad?  Sooner or later?  Clinton or Trump?  The complexities of modern life require more consideration than a binary choice can ever do justice to. Yet so often we allow ourselves to be seduced into making a choice of ’either/or’ when presented with one.After all, there is a 50:50 chance of getting right or wrong and many yearn for a balanced approach.

July sees the Democratic and Republican national conventions where the presumed candidacies of Hilary Clinton and Donald Trump will be endorsed, respectively, by each party’s delegates. The nature of the final stage of the race for the White House is usually a binary choice.

There is nothing to stop an additional party candidate but, historically, any third party runners have acted as mere spoilers. Yet there is a considered view that 2016’s ‘spoiler candidates’ from, perhaps, the Libertarian Party and the Green Party could be influential in attracting votes away from the two main protagonists and affect the outcome of the November poll.

It is also assumed that foreign policy wise, the two likely candidates will pursue quite distinct approaches upon occupying the Oval Office.  Put lazily, one will pull up the drawbridge -  if not build a wall - to shore-up a protectionist stance and the other will be interventionist in a more obvious way than the 44th president has been.

Again, it seems like a choice between one way or another but the duties incumbent of the role of Mr or Madam President as the head of state, the head of government and commander-in-chief of the armed forces make for a more complex approach to policy making, thankfully.

What foreign policy commentators do seem to agree on is that the 45th President of the United States of America needs to decide whether or not he or she wants to see the USA continue in its role as the world’s ‘policeman’ – a role occupied after 1945.

Back then there did seem to be a binary choice between two powerful, opposing forces: communism and anti-communism.   But since the demise of the Soviet empire, things have, even on the surface, become more complex and there are certainly more than two forces in play when it comes to powerful nations with global ambitions.

The same commentators feel that if the USA is to retire from its policeman role then it needs to make it plain to the rest of the world sooner rather than later.  Some policy experts feel it is now time for the USA to become part of a new constabulary force.  Either that or it is going to have to carve out its new post-retirement identity and make plain its attitude to any new recruits who are rising up the ranks.

In terms of military, diplomatic and commercial clout the USA’s pre-eminence endures.  Whoever is inaugurated next January will have to make more than two choices about what to do with all that power, that’s for sure. It’s not a case of use it or lose it because it’s always likey going to have it.

High up on the new president’s ‘to do’ list will surely be what to do with its transatlantic cousins who live in an increasingly fractious if not fractured Europe.

Who would have thought that just having two options would make things so complicated?  A binary choice in some affairs is just too, too simplistic.

Will Mooney MRICS
Partner
Commercial, Cambridge