Negative split times

Will Mooney, Carter Jonas partner and head of commercial and professional services in the eastern region, feels the economic recovery is now a marathon not a sprint.

No athlete myself, I am, however, familiar with runners’ focus – which can border on obsession – on their negative split times. My familiarity extends no further than knowing that, in essence, this means finishing a run faster than you started while acknowledging that there might be a sag in the middle.

Look at coverage of and comment on the Bank of England’s latest Inflation Report and it could be concluded that the UK is in that sag. We definitely started this post-recession recovery slowly and we gathered pace in the past 18 months. While we know we’ll get there in the end, the doom and gloom first glance coverage of the prospect of deflation is enough to bring the Eeyore out in any of us whose natural disposition doesn’t tend toward the Tigger at the best of times.

But the prospect of a fall in UK interest rates to the point of a negative rate was laid out in conditional terms by Governor Carney. Interest rates might fall but could rise and banking sector activity would suggest a tendency to expect the latter. Last year, we bemoaned the prospect of the rise of interest rates and many people adjusted their borrowing and spending accordingly merely in anticipation of something that has yet to happen or might not happen for a good while yet.

Financial markets don’t deal in something called futures for nothing.

The current weakness of the price of commodities such as food, oil and energy - as cited by the Bank of England – shouldn’t really be mistaken for debilitating deflation. What goes up must come down and vice versa.

Thinking of the pound in our pockets, may be deflation is not so bad for commodities in the way it is for consumer durables of which the ‘big television’ is used as shorthand. We might put off buying the new big telly but we only bought our old big telly back in the days of easy credit when consumer durables weren’t treated as durable because they were so easily replaced.

But look where that got us?

Day to day consideration of the wider UK economy can be troublesome for those whose business, professional and personal interests are rooted in this region which is so dominated by the success of Cambridge. The latest Centre for Cities report once again confirms the economic pre-eminence of Cambridge among the top ranking cities of the UK. The city scores top marks in the ranking of cities across a range of measures including the lowest number of claimants for Job Seeker’s Allowance (JSA), the highest skilled workers, the most number of patents granted per 100,000 population and the highest house price growth.

It has become normal for Cambridge to occupy these top slots in the Centre for Cities annual rankings but it’s important that this normality shouldn’t be mistaken for complacency. Those of us privileged to live, work and thrive here are acutely aware of the national and international context in which Cambridge succeeds.

There’s talk of economic normality on the horizon for the UK from some commentators but it can be a struggle to recall what that is – if we ever had it in the first place.

Before the next Bank of England inflation report, there will be a General Election and politics and democracy have a habit of interrupting economic programmes.But what do I know? It’s all Greek to me.

Will Mooney MRICS
Partner
Commercial, Cambridge

Our ping-pong recovery

It was exactly three years ago when I was advised that ‘being on the brink is the new normal’ for what, at the time, was the foreseeable future. In 2011, many weren’t willing to assign a specific number of years to ‘the foreseeable future’ but I think we can say that, three years on, we are back from the brink, economically.

Yet as many economic and financial commentators judge, the country is still in a strange state of being where one set of indicators suggesting positive news is offset by another giving a gloomier gloss to our recovery. Yes, the economy is growing but there will be a shortfall on the deficit above £100 billion by the end of this year.

One Eurozone economist recently characterised the UK’s growth as ‘the wrong type of growth’. Much like the seasonal ‘leaves on the line’, it’s probably the best explanation for the feed of ping-pong, back and forth, contradictory economic data this autumn and the balancing act those politicians charged with running the country are having to perform day-in and day-out as our recovery plays out.

Perhaps the bruising economic experience the UK has endured since 2008 has changed our perceptions of what amounts to recovery. Pre-crisis, debt-levels being 40 per cent of national output were considered high but now it’s 80 per cent which is the trigger point at which the credit rating agencies talk about withdrawing our triple AAA status.

The shortfall on the deficit by this year’s end would have been considered big in times past at 6-7 per cent of national output but it is not as big as it was at its 9-10 per cent peak in 2008/2009.

In October, published figures recorded that unemployment had fallen below the 2 million mark for the first time in six years. But in this current tax year of 2014/15, income tax receipts are up by just 0.1 per cent yet outlay on social benefit payments has gone down.

Wage inflation runs at just 1 per cent at this point in our recovery but the Bank of England is anticipating 3 per cent wage inflation by the end of next year and therefore tax receipts will be up.

It may feel like a heavy trudge through the recovery now but many analysts are convinced there is good news in the pipeline and, thankfully, the wisest market operators will always invest for the long term.

Before that, we have the General Election in May and all bets are off that the Chancellor of the Exchequer’s Autumn Statement – scheduled for early December – will be anything else but a necessary political and economic balancing act of ‘Austerity Lite’. There is likely to be further squeezing of public expenditure but the pinch will not be as nippingly sore as it was in the early years of this administration.

In this ping-pong recovery of ours – in which we are growing faster than Germany - whether it’s politics which is the foil to economics or vice versa, balancing is not an act: it is the reality.

Much as we did in 2011, we are going to have to accept this new reality of our recovery for the foreseeable future.

Will Mooney MRICS
Partner
Commercial, Cambridge

A bitter pill for some to swallow

Some party political interests piled in to the recent Pfizer/AstraZeneca corporate tussle and this has made Will Mooney, Carter Jonas partner and head of its commercial agency and professional services in the eastern region, think about how potent a mix international business and national politics can be.

In the weeks which preceded Pfizer’s accelerated courting of AstraZeneca – which, appears, for the time being, to have peaked in mid-May with its delcined offer to AZ shareholders of £55 per share - there were almost as many reviews of the translation of a 2013 book by a radical French economist being undertaken by economic and financial journalists as those of their literary and cultural commentator peers.

The book was “Capital in the 21 Century” by Thomas Piketty and it was even reviewed in the Daily Telegraph by the immediate-past governor of the Bank of England, Mervyn King. While Lord King appeared not view the book as one of those works which changes the way we should look at the world, it pricked his interest enough for him to argue a different viewpoint to that of Monsieur Piketty.

The guiding premise of the book - not that I have read it, you understand – appears to be that, in this century, capitalism works in presumption in favour of inherited wealth over earned wealth because capital’s rate of return outstrips that of growth.

It’s a view. And not one a mere property agent is equipped to examine further.

My comment is only the coincidence of the timing of the book’s publicity and what might well play out as one of the biggest corporate capitalist battles of this decade. National politicians were struggling to keep up with a bigger battle than they could possibly control when it came to the AZ/Pfizer business. They knew it and most of us interested in the adventure knew it too. Yet the politicians couldn’t resist feeling they had to make some kind of pronouncement on it and take a position. It wasn’t edifying to see them operate their analogue arguments in this digital age.

In knowing that they couldn’t sanction whatever outcome there was going to be to Pfizer’s approach to AstraZeneca – save changing a tax regime which gives such R&D business interests a favourable home in UK PLC – the national body politic held court as the CEOs of both companies were questioned by a Westminster parliamentary committee for two days in a week which must have been one of the busiest in those two CEOs’ executive lives.

Those whose interests it suited likened the AstraZeneca situation to that of the recent sell-off of the Royal Mail and talked, wistfully, in terms of the selling off the nation’s crown jewels.

AstraZeneca and its work is one of the jewels in the corporate crown of the UK scene but it’s not a nationalised industry and it’s not ours to sell and never has been. Although in the mists of corporate time, there was a connection with the once mighty UK chemical institution ICI before ICI Zeneca was formed as part of a de-merger in the mid 1990. But it was never a state-owned operation. The Astra was put into Zeneca in 1999 as the result of a merger with Swedish company Astra AB and it then set off on a programme of acquisitions of its own which is still current.

The point is, in the 21st Century, fluffy and patriotic feelings about PLC companies are irrelevant. Whether Anglo-Swedish or American in origin, international companies are corporate citizens of the world and can, and will, choose to domicile themselves in whichever location suits them and their shareholders’ interests best at any one point in time.

To attract the best of business it seems, the best any single nation’s politicians can do is create an environment and circumstances in which as many of these companies as possible feel welcomed enough to locate and recruit and certainly not adopt a political posture which might put-off such companies in future.

Will Mooney MRICS
Partner
Commercial, Cambridge

Property Investors Return With Confidence

The year has been heralded as one in which investor confidence in property will return in earnest. Rural property peers have pointed to the ‘froth’ skimming off premium agricultural land values this year as property-minded investors return with more confidence to the more obvious residential and commercial sectors for the first time post-credit crunch.

But, in the commercial sector, it’s by no means the wholesale return of investor confidence in any commercial property opportunity and the smartest money is always ahead of the game in the smartest of locations.

Last summer, Cambridge greeted the news that Tesco Pension fund is backing developer Brookgate’s 65,000 sq ft Grade A building which is at the heart of the cb1 scheme. But this five storey building was already pre-let and pre-let in Cambridge is always going to be a sure-bet.

In places like Cambridge, where there are limited opportunities in a smattering of its remaining key strategic locations, funders have been prepared to invest on very specific terms for the past three years. The terms usually involve pre-let agreements, more often than not with blue-chip companies and with certainty of long term leases.

Given the limited and ever diminishing supply of commercial sites with viable opportunities in Cambridge, those which exist are big ticket items and so it’s the cream of the funders who are attracted here.

With forecasts that the development pipeline will be reduced by more than 25 per cent by the end of this year, there’s concern about future opportunities for commercial property investments.

Investors like to look ahead and stay ahead but it’s getting more and more difficult to point to the next tranche of Cambridge sites looking for funding. Land which is supposed to see the city through to 2030 is already coming in to the calculations and commercial allocation.

With so much current building activity in Cambridge, it’s difficult to convince a lay audience that there’s a paucity of sites in supply on the near horizon but it’s one we will have to face – and soon.

The year 2014 is going to be a big one for those with development and property interests here.

This year sees Cambridge City Council and South Cambridgeshire District Council’s Local Plans firming up with the identification of residential and commercial site allocations to take the area through the next couple of decades.

At the end of this month and in the early days of February, we welcome in the Chinese Year of the Horse. People born in years of the horse are believed to be active and energetic and, work wise, they refuse to give in to failure but, add the astrologers, ‘their endeavour cannot last indefinitely’.

In a twelve year zodiac cycle, the next year of the horse in 2026 - property investment funds are already backing Cambridge sites that are four years in front of that horse.

Will Mooney MRICS
Partner
Commercial, Cambridge

New father time

At the year’s end Will Mooney, Carter Jonas partner and head of its commercial agency and professional services in the eastern region, is looking forward, very far forward.

Whether your view of Old Father Time is that he hands his watch over to New Baby Time on Hogmanay or you’re of the feeling that, much like the Grim Reaper, the old fellow is a fixed feature who watches over us year-in year-out as the sands of our lives slip through the hourglass, is a matter of cultural education or superstitious belief.

What the Oxford Martin Commission for Future Generations wants us to do is exorcise our habit of short termism and think about the consequences of our actions. When I say us, what I mean are policy makers who are urged in the Commission’s report “Now for the Long Term” which calls for radical thinking in policy and business.

The Oxford Martin School (http://www.oxfordmartin.ox.ac.uk) is an “interdisciplinary research community of over 300 scholars working to address the most pressing global challenges and opportunities of the 21st Century”.

The Commission’s latest report has ideas about transforming the way governments and corporates go about their business. But the ideas are not founded on wishy-washy sentimentalism. How could it be? The international brains of the commission are chaired by the former director general of the World Trade Organisation, Pascal Lamy who only left that post in September.

The report identifies megatrends - demographics, social mobility and technology to name but three - that are shaping the 21st Century. A century which, the founder of the School Dr James Martin, says could be our best or our worst ever.

These megatrends are, by default, drivers of change and our institutions need to update themselves or become obsolete.

Business and financial systems come in for criticism for short termism. The sector is urged in the report to re-wire itself for long term investment as opposed to slavishly following quarterly reporting cycles.

Interestingly, on the day Pascal Lamy was fulfilling his media commitments about the launch of the Commission’s report, news broke of the departure from Invesco Perpetual of one of the biggest stars of fund management. Neil Woodford said his decision to leave his role managing a £24.6 billion fund and co-managing another of £6.4 billion was based on where he sees long term opportunities in his industry.

Monsieur Lamy pointed out to one interviewer that the news media seemed to be frightened by the long term too. In a time of rolling 24-hour news schedules to fill, it’s no wonder many journalists and producers look to the brevity and immediacy of Twitter and other social media platforms for news and views to source or reinforce a story or even report social media activity as news in itself. There’s a lot of air time to fill and our attention span appears to be ever-shortening.

Pascal Lamy pointed to a couple of examples where business and policy makers had come together to think about the long term with staggering success achieved in a relatively short space of time. Namely, anticipation of Y2K technology meltdown in the year 2000 and also in setting minds to tackling HIV-AIDS in the late 1980s and 1990s.

It seems fitting to quote Marx here: Groucho Marx. “Why should I care about future generations – what have they ever done for me?” But it seems that the Oxford Martin Commission’s view is that in thinking about future generations, we could actually do ourselves a favour right now.

Will Mooney MRICS
Partner
Commercial, Cambridge

New permitted development rights

Hot on the heals of the new permitted development rights which came in to force earlier this year the Department of Communities and Local Government have consulted on further proposed changes to the permitted development rights which could have a significant impact in the rural sector.

Before considering the changes that have been introduced and also those on which the government are consulting it is probably worth going back to basics to explain what permitted development rights are. As most people will be aware if you want to build a house or new office for example one would normally require planning consent and in the countryside in particular, carrying out such developments has often been difficult.

However, there are certain types of development that do not require planning consent such as minor extensions to houses or certain changes of use and these types of development are carefully defined and set out in “General Permitted Development Order” (GPDO). The right to carry out certain types of development under the GPDO are called “Permitted Development Rights” and it is the recent changes to these rights which may be of interest to farmers and other property owners.

The key changes which have already come in to force on 30th May this year which may impact on farmers in particular include:

• The permitted change of use from agricultural use to a whole variety of commercial uses including offices, shops, financial and professional services, restaurants, business and storage.

These new rules are not applicable to recently built farm buildings (first brought into use after 3rd July 2012 or later), buildings which have not been solely in agricultural use, Listed Buildings or where the change of use exceeds 500 sqm. There are also a number of conditions which apply, perhaps the most important of which is that if the area involved exceeds 150sqm the farmer will need to gain “prior approval” from the Local Planning Authority before enacting the change of use and the LPA have the right to refuse the application.

• The permitted change of use from offices to dwelling houses.

Again there are a number of conditions which apply. For example the building must be in office use immediately before 30th May 2013 (or last used as an office) and must be brought in to use as a house before 30th May 2016. Such change of use is also not applicable to listed buildings. For all such changes, “prior approval” from the Local Planning Authority will be required which can lead to a refusal of the application.

However, in addition to these two significant new rules the government are consulting on a number of additional potential permitted development rights including the change of use of existing buildings used for agricultural purposes of up to 150 sqm to change to residential use with up to three additional dwellings potentially allowable on farms.

It remains to be seen whether such a fundamental change will be allowed but what does seem certain is that at a government level, even if this may be resisted at the Local Planning Authority level, there is an increasing willingness to contemplate some forms of development even in the countryside which will present opportunities for some farmers and landowners.

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