They say that a week is a long time in politics.
For the real estate industry in Europe, the week perhaps can’t end soon enough, after the last seven days delivered a ground-breaking budget from the UK’s new Labour government, the US elected Donald Trump, the Bank of England enacted another rate cut, and the German government collapsed.
Taking the seismic shifts in order, the new fiscal environment in the UK resulting from Rachel Reeves’ debut budget may promise good news for house builders and infrastructure backers, but has alarmed some parts of the logistics industry by excluding it from business rate reform. Inheritance tax changes for farms could increase the supply of rural land, but not necessarily in a way which is beneficial for the real estate industry.
While the budget commits £5 bn (€6 bn) to housing investment, including a £500 mln uplift for affordable homes, market watchers are not clear if the government can meet its target of delivering 1.5 million new homes over the next parliamentary term.
Meanwhile, plans by the government to offer retail, hospitality and leisure properties in the high street a permanently lower business rates multiplier from 2026/27 notably excludes ecommerce-fuelled warehouse owners and operators. The government’s budget paper outlines ‘an intention to fund this sustainably via a higher multiplier on properties with a rateable value of £500,000 and above, which includes the majority of large distribution warehouses including those used by online giants’.
Claire Williams, research associate at Knight Frank’s industrial & logistics team looks on the bright side, suggesting that the budget has ‘numerous positive implications for the industrial, logistics and manufacturing sectors’. She notes that the unveiling of ‘eight new Freeport status locations across the UK will mean simplified planning process, cheaper customs and tax breaks to encourage construction and private investment for those areas’ and that the ‘new “super-deduction” tax cut aimed at encouraging firms to invest could help boost manufacturing investment in the UK.’
She adds: ‘Equally, the promise that fuel duties are to be held at their current rate will have a positive impact on the logistics sector, ensuring the production and distribution of UK goods remains competitive.’
Rate cuts
But the budget has given the Bank of England’s rate cutting committee further food for thought. While the Bank delivered the expected quarter point cut on 7 November, bringing the headline rate down to 4.75%, James Smith, UK economist at ING suggests that ‘the combination of extra fiscal stimulus and a volatile US election aftermath means officials won’t want to comment on its next steps’.
For Smith and others, a December rate cut is now less likely, although a lot will hinge on the two inflation reports due before Christmas. Governor Andrew Bailey commented that inflation is ‘expected to rise somewhat’ in the coming months, to around 2.5% by the end of the year.
Yet with the US Federal Reserve expected to follow suit with a rate cut of its own today, global markets are on the whole responding well to an improving macroeconomic environment.
Election outcome
Stock markets responded positively too to the news that Donald Trump has been elected 47th President of the United States. Yet the potential global impact of the Republican Party’s tariff plans and a preference for protectionism cannot fully be calculated at this stage. Unclear, too, is the fate of Ukraine and resulting political and economic stability in central and eastern Europe, should Trump pull troops from the conflict.
Other commentators see real asset opportunities continuing to flourish despite question marks around Trump’s stance on environmental issues. Says Emily Foshag, portfolio manager of the Principal Asset Management Global Listed Infrastructure fund: ‘We expect the combination of a Trump win and Republican control of Congress will lead to attempts to repeal various provisions of the Biden administration’s historically relevant climate legislation, the Inflation Reduction Act of 2022.
‘However, we expect tax credits supporting onshore wind and solar investment – the most meaningful aspect of the legislation for listed infrastructure companies – will continue to be supported in any scenario. These policies have been in place for a long time and benefit from broad bipartisan support, and we believe the energy transition will continue to be an investible team for decades to come.’
An unexpected footnote of this startling week was the news that the German coalition had collapsed, after Olaf Scholz fired his finance minister, Christian Linder. While Scholz had hoped that the action would give him time to schedule a confidence vote in the new year, Friedrich Merz, chair of the Christian Democratic Union (CDU), said there was ‘absolutely no reason to wait to put off the confidence vote to January’. The vote is now likely to happen next week, with snap elections expected to follow in the new year.
Foreign minister, Annalena Baerbock of the Greens, defended Scholz with a glance at the US, saying that his ‘orderly transition’ was the better pathway ‘because order is the most important thing in these insecure times’. But only time will tell if orderly politics will win out in the coming weeks.
