Mid 2022 year review - resilience in a turbulent year

Wed 13 Jul 2022

Resilience and an enduring commitment to the long term value of land and property assets have underpinned market moves in the first half of this turbulent year (2022) according to Shouler & Son.

That’s the message the East Midlands property firm’s rural, commercial and residential professionals take away with them in their mid-year report ahead of the peak summer holiday period.

At the beginning of the year Shoulers reflected on a complex 2021 but had anticipated a clear direction of travel for land and property in 2022.

However, from February onwards, conflict in Ukraine and the subsequent - and ongoing - global economic fallout, plus turbulence on the UK domestic political scene, has made for an even more complex first half of 2022.

Although now beginning to play out in some slices of the commercial and residential sectors, the rural sector was first to feel the effect of February’s geopolitical turmoil when, almost overnight, forward markets saw fertiliser jumping to over £1,000 per tonne and wheat commanding over £300 per tonne.

 This was at a time when, in the first quarter of the year, Shoulers’ rural professionals were working with clients to come to terms with a number of new policy initiatives and scheme application openings that came in quick succession from Defra. These formed part of the transitioning from the Basic Payment Scheme (BPS) to Environmental Land Management Scheme (ELMS) as the mainstay farming funding framework.

The impact of conflict in Ukraine and the ripple effects on global energy costs, food production and supply chains since the beginning of the year appeared to re-shape the Government’s headline thinking in its Food Strategy for England which was published mid-year (13 June).

 It had been widely anticipated that the white paper would put matters of addressing healthy eating through regulation centred on specific foodstuffs at its core. However, the focus appeared to move away from this in taking account of world events in the first half of the year.

 Many operators with farming and rural business interests took note of this in wondering whether this, perhaps, signalled a halt, if not a reversal, in the general drift of central policy formation not having taken importance of domestic food production and security seriously enough before this year.

Overlapping rural and commercial property market moves in the first six months of 2022 for Shouler & Son has been the success of what’s known in the sector as ‘farm sheds’ - small industrial units located within a farm business setting.

Set against the sustained appetite by investors and occupier demand for any industrial units, Shoulers’ commercial team reports ‘farm sheds’ in the firm’s patch of the East Midlands are commanding £5 per square foot (psf), achieving 2.5 per cent yield in many instances.

The legacy of regional and local land use policy has seen a scarcity of employment land, in particular, Rutland. The focus on land allocation for housing has displaced industrial property to large conurbations such as Peterborough and Nottingham.

Lack of employment land in the county has seen commercial property interests outbid those of residential developers for land here on a number of occasions so far this year in pursuit of sites. Limited availability of sites means £175 psf for freehold land in Rutland has not been uncommon so far this year.

The commercial team, however, adds a couple of notes of caution in its mid-year sector report.

Some landlords are beginning to offload commercial property interests against the backdrop of capital gains tax (CGT) liabilities and also the anticipation of legislation that might see property with an energy performance rating above the current minimum level becoming unlawful to let from 2025.

The firm’s residential lettings professionals share the same concerns as their commercial colleagues in this regard too.

Alongside their commercial peers, residential landlords are also reviewing their rental portfolio size in the face of CGT. Any forthcoming alteration to minimum energy performance levels of lettings properties are also part of the mix in reviewing portfolios.

The first six months of the year has seen a number of residential lettings landlord clients downsize portfolios once a tenant has given notice on a property - more so than in equivalent periods in previous years.

However, as a counterpoint, the lettings team reports that this offloading could be due to the first six months of the year, favouring sellers. Lack of stock has seen house prices at historic highs, locally.

Mid-year (16 June) saw publication of the government’s blueprint for a fairer private rented sector (PRS). The policy document seeks to address the quality of housing in the sector and also the nature of the relationship between landlords and tenants.

Any measures to address operators in the sector who offer sub-standard rental property or a poor quality service to tenants are, of course, welcome.

However, any heavy handed regulation - or even the anticipation of it - may see some landlords further offload their investments. Consequently, any reduction of stock will result in higher rents which would be counterproductive to the government’s desire for a ‘fairer PRS’.

The ‘cost of living crisis’ is just beginning to have an impact on the residential lettings scene mid-year. Tenants are opting not to move on at the end of lease. Rather, they are opting to renew and remain in their current property - where they already have established relationships with energy providers.

Ending the first six months of the year on a positive note, the residential lettings team has recently confirmed the letting of a farmhouse property at £2,295 pcm, with similar rural residential rental properties coming to market in the coming months. There is ongoing demand for estate-based rural properties offering generous outside spaces.

Shouler & Son is blessed in its location in the rural East Midlands and it is the strength of attractive properties here that contributes to market moves for the firm’s residential sales team.

The cost of living crisis has yet to play out in the residential sales sector and it is questionable whether it will in the premium property slice of the market in any meaningful way.

By mid-year, and in looking forward, our residential sales professionals report the market becoming more property-specific. One-off, attractive properties are coming to the fore.

Modest country residences in this sector - but with swimming pools and generous gardens - have always commanded attention but the sense is that while these would have been a hard won sale by agents even in recent markets, there is now serious active buyer interest in such properties in the current market.

While there is a view that London house prices have peaked and are now beginning to harden, properties in the rural East Midlands continue to benefit from urban exodus trends.

Whether and when local house prices will harden is a moot point among peer estate agents. But, even if they do, there is always a good churn of market moves initiated by the inevitability of the stages and milestones of domestic family life.

Concluding Shouler & Son’s mid-year report for 2022, Ben Shouler, Partner, said, “Few of us could have forecast how much this year would be re-set in February.

“In nudging 180 years since the firm was established, we have weathered many economic and political upheavals. Key to such longevity is ongoing renewal and business growth.

“The firm is in good shape in facing the headwinds of the rest of the year with underlying resilience.

“Mid-year saw the launch of the new website and marks another significant phase in our business development plans for the year (2022).

“We have an ongoing recruitment drive to attract fresh talent whose thinking complements that of our established property professionals.

“Increasing our headcount follows the appointment of a new head of residential in the spring and the reorganisation of our commercial property and rural teams.

“This renewal and refreshing of our professional advisory and agency services reinforces our offer to established and new clients.

“In tandem, we can look, with confidence, to maximise the long term value of land and property assets no matter how many re-sets the rest of the year may bring.”