Will Rate Rises Hit Commercial Property Market?

The last few years have seen plenty of commercial property conveyancing in Yorkshire, not least in cities like Hull and Leeds that have been seeing a lot of new developments. 

 

However, the recent increases in the base rate by the Bank of England in response to soaring inflation has led to concerns that investors may be deterred from adding to their portfolios. 

 

According to a report by Goldman Sachs, the value of the commercial property market could drop by around £14 billion as a result of more interest rate rises, This is Money reports. Among its fears are not just that the higher cost of borrowing will make raising investment funds costlier, but that a recession could also reduce demand for property. 

 

It said there would be “renewed pressure” on retailers from a combination of inflation and recession hitting consumer spending as well as higher energy and interest costs. Some firms may go bust, creating empty commercial space. 

 

The Wall Street giant has also predicted that the recession will be deeper than it previously forecast – from a 0.4 per cent decline in gross domestic product to a one per cent drop – following the abandonment of government plans to cut corporation tax, as this will add to business costs. This is based on the expected impact of further significant rate rises. 

 

Of course, while this projection, if accurate, may be bad news for some investors, it will not be for all. Firms able to make significant cash purchases in Hull may find they can pick up bargains in distressed sales and when properties become vacant as occupiers go to the wall. 

 

With Liz Truss having now resigned, it remains to be seen whether her successor can achieve greater economic stability, avoid spooking the markets and prompt the Bank of England to take a less intense approach to monetary tightening. That may have a significant impact on the prospects for the wider economy and, by extension, commercial property investment.