Whilst we have witnessed a boom in house prices, both the residential and commercial property sectors are looking at an uncertain future. The recent interest rate rises, and fears of a recession will be weighing heavily on all businesses.
Our property development clients will be concerned with the latest data from the purchasing managers index advising that construction output in July had the single biggest fall since May 2020. This was attributed to the impact of ongoing base rate increases and the cost-of-living crisis leading to fears that we are heading into a recession. The biggest fall was in civil engineering projects but housebuilding, despite recent booming prices and sales, also dropped.
It is well documented how the sector was impacted by the pandemic both due to the original shutdown and then the additional costs of providing covid safety measures as sites were able to open, combined with the ongoing materials shortage and price inflation.
Whilst we appear to be emerging from the pandemic, this latest data will not be welcome, particularly as it coincides with a significant increase in the material price index as reported in the July 2022 Monthly Statistics of Building Materials and Components from the Dept for BEIS which reported that the material price index for ‘All Work’ increased by 26.4% in June 2022 compared to June 2021.
With costs of all material types increasing, we are concerned about the impact this will be having on profit margins across the sector. Finance costs will be adding further to the margin squeeze and there is no sign that will change in the near future.
For our property management clients, the outlook is no better. Having endured the covid lockdowns and the devastating effect that had on high streets across the UK, landlords will still be trying to recover rent and service charge arrears that arose during the pandemic. It is good news that the moratorium preventing recovery has come to an end, but landlords are required to act within the Commercial Rent (Coronavirus) Act 2022. Changes to property taxation are also impacting on expected returns from portfolios. Our colleagues in SKSi are well placed to assist landlords with recovery, particularly as the Act has a focus on supporting the tenant. Please read this article from SKSi to learn more about the act and how they might be able to assist.
Whichever sector you are operating in, we would like to arrange a meeting to review your current financial position. Depending on that review, we can introduce our colleagues in SKSi, either to assist with recovering debts, or to discuss some potential reorganisation and/or alternative sources of finance to improve your financial viability, or indeed to assist with recoveries under the Commercial Rent (Coronavirus) Act 2022.
To arrange a review, please get in touch.