Budget 2021 – What does it mean for Commercial Real Estate?

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Budget 2021 – What does it mean for Commercial Real Estate?

Today’s budget contained some surprise announcements that property investors should take note of.

Given measures introduced in 2020 to ease the impacts of the pandemic, bolstered by the popular Stamp Duty (SDLT) Holiday policy, property experts weren’t expecting too much in the way of further relief for the sector today.

In fact, some spoke of a rumoured Capital Gains Tax hike; suspecting the Government would prioritise tackling the UK’s £2.2 trillion debt.

Thankfully, this didn’t transpire. In fact, a litany of policies were introduced that will offer new relief for the UK’s resilient property market. Commercial Real Estate investors specifically will appreciate the announced changes to business rates, as well as planning system reforms likely to bolster the number of new developments.

Highly Rated

With the gradual post-COVID return to the office well underway across the UK, there was a clear opportunity for the Government to incentivise businesses and their landlords to invest in their commercial real estate holdings. The Chancellor was sure not to squander this opportunity, introducing new Business Rates investment relief and green technology Business Rate exemption.

Both policies will spare businesses from paying higher business rates after making improvements to their properties or businesses, as the Chancellor explained today:

“We’re introducing a new investment relief to encourage businesses to adopt green technologies like solar panels…and from 2023 every single business will be able to make property improvements and for 12 months’ pay no extra business rates. That means a hotel adding extra rooms, a manufacturer expanding their factory, and office adding new air conditioning CCTV or bike shelters will pay no extra rates.”

Alongside these encouragements to fuel investment into commercial properties, there was another change to business rates that Commercial Landlords will welcome: a 50% business rates discount for retail, hospitality, and leisure businesses. After such a tumultuous two years for these sectors, with many businesses barely hanging by a thread after COVID’s economic fallout, this represents a potential lifesaver for such businesses and their landlords.

However, important to note is that this 50% reduction is limited to a cap of £110,000, effectively barring larger outlet groups from taking full advantage of the relief.

When planning out new investments for the year ahead, investors in commercial real estate would do well to keep these new business rate changes in mind. Alternatively, investors who are keener on seeking out entirely new opportunities, rather than improving on their current portfolio, will also be able to take advantage of new initiatives from today’s budget.

Planning ahead

On the face of it, the most important Treasury announcement today was the £4.8 billion uplift in general local authority funding over the next three years.

Advertised as “the largest increase in core funding for over a decade”, some property investors are hopeful that this cash influx will help overcome the UK planning system’s current problems.

With so many local authorities claiming to be too under-resourced to cope with the amount of planning applications flooding in; this additional funding, combined with an announced extra £65 million into the digital transformation of the UK’s planning system, may well help speed up planning permission processes across country.

Although councils will inevitably have to divvy this funding across education, social care and other policy priorities – a potential acceleration of the planning process should provide ample investment opportunities for budding commercial landlords as work begins on new developments the UK over.

Ultimately, there was plenty of good news in today’s budget for property investors. Some may be disappointed that further relief wasn’t announced, especially given that last year saw the Treasury introduce the SDLT holiday. However, with the industry currently going from strength to strength, we can be cautiously confident in a real estate sector revival in the coming year.

CCallum Delhoy, Account Manager at Innesco

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