Budget 2011 – Not much for the Commercial Property Sector – by William Hinckley

Once again, George Osborne’s budget contained little to excite the commercial property sector, despite promises to ignite the enterprise and business worlds. Small businesses will be relieved to have had their rates relief extended for a further year, but this will only assist businesses who occupy properties with the combined rateable value of less than £18,000. The well intentioned Chancellor also proposed 10 ‘improvements’ to the planning system including a “presumption in favour of sustainable development” and a ”streamlining of the planning process”, the latter having the somewhat ambitious (and rather unlikely) objective that all applications, including any appeals, will be dealt with within 12 months. These proposals fly in the face of the coalition government’s “localism” agenda which seeks to give the electorate the veto about whether a development proceeds or not, and which had the immediate effect of sharply reducing the number of planning applications as both councils and house builders got to grips with the new system. The 10 changes announced by George Osborne are not all without merit, but all require serious further thought to ensure that they don’t cause more damage than good. One proposal which will have caught the eye of commercial property owners was the proposal to consult on plans to make it easier to convert commercial premises (by which we assume offices) to residential. It is admirable that the Chancellor is looking to find ways to invigorate both the residential and commercial markets by providing the opportunity to create more cosmopolitan 24 hour ‘living’ towns where there is a mix of business, retail, restaurant and living accommodation. There are undoubtedly some towns which still have an over-supply of outdated, empty, or partially empty office buildings where the local council is resisting conversion. In many towns, however, office-to-residential conversions have been taking place for the last 10 to 15 years. The problem is that in areas where office rents are below £20 per sq ft it is unlikely to be viable to replace the old stock with new offices and, as a result, there is a diminished supply of offices. In such towns this proposal, which has absolutely no regard for the requirements of the business community, could drive the office occupiers from the town or city centre.

Kent Economic Roundup by Michael Bax

Some interesting insights from various business representatives at the Kent Economic Board
on 22 March.

• Avionics - business buoyant but UK a waste of time. Many orders from developing countries.
• Packaging - improved export orders but UK market soft. Japanese disaster likely to cause increase in price of world’s steel.
• Motor industry – tough and February figures worst for many years.
• Construction - current order book strong but 50% down projected 12 months from now.
• Media - signs of improvement at last.
• Legal Services - highly competitive and serious concerns over East Kent unemployment. Including contract workers, Pfizer job losses will amount to approx. 10,000, and equivalent losses are expected in the public sector in East Kent.
• Marketing - many new ideas coming through but general lack of confidence in terms of ability to promote and market response.
• Residential Development – demand is strong but the problem is supply and lack of mortgage availability. Prices are static and the main activity is from downsizing, divorcees and first time buyers. This developer had launched three sites since Christmas and has six more in the pipeline. Different funding models are required to enable viability for developer and landowner.
• Kent Ports - worth noting that Sheerness is considered to be 17th in the UK Poverty Stakes. Nevertheless the ports industry is busy in the Medway and various plans are in hand for Sheerness and Chatham/Rochester. All schemes dogged by planning uncertainty. Various opportunities on renewables, but no confidence on FIT policy which also needs certainty.
• South Eastern Rail - relatively upbeat and generating profitability, which has immediately led to reduced Government support.
• SEEDA - approaching closure and nothing finalised on allocation of Kent assets.
• Television - significant potential new work, but need for expansion including new buildings/infrastructure. Once again being suffocated by the planning system.

This theme on the painfully slow planning process cropped up again and again in discussions. Some people are simply not contemplating projects, because they need to be able to bring ideas to fruition within 12/18 months and see any serious planning proposal as taking between three and five years. A business cannot be run against that background. One individual expressed the view that the Government had “created a legislative theme park for small minds”. Localism is considered to be a disaster in the making and will be the final obstruction to initiative and innovation. Nobody understands what is meant by the “Big Society”.

Broadband in Kent by Michael Bax

This follows my note from 2009/10.

UK is as low as 25th in the world league table in terms of Broadband coverage.

33% of rural businesses and households have less than 2Mb capacity and nearly double that have less than 4Mb.

So far as Superfast Broadband is concerned, it will cost between £500M and £1.1Bn to get fibre to all property in the County and at this stage 40% of Kent’s businesses are in areas of market failure so far as this is concerned.

It is not only a question of what it will cost to get Kent properly enabled, it is also a question of the cost to the Kentish economy of NOT providing rural broadband.

In Cornwall, virtually the whole county is broadband enabled and this has been achieved using European money and County Council grant.

There have been some local initiatives in Kent, e.g. Womenswold where a satellite router has been installed, powered by small wind turbine and pv cells. This is pinging 8Mb round the village.

Please go to broadband@kent.gov.uk and return the questionnaire to support the County Councils efforts on this vital subject.

Thoughts on the Campaign for the Farmed Environment by Anthony Field

I recently attended the Kent launch of the Campaign for the Farmed Environment at the Montreal Estate hosted by the Farm Manager, James Standen, and by kind permission of the Jaques family.

There is little doubt in farming circles that we are in danger of being choked by excessive regulation and red tape.

In 2009 the Government carried out a consultation on ways to recapture the environmental benefits that had previously been obtained through set-aside. The options were:

1. A regulatory approach enforced by DEFRA.
2. A voluntary approach led by the farming industry.

At the Royal Show Hilary Benn announced a challenge to the farming industry for us to embrace the voluntary approach and avoid further regulation.

The success or failure of this campaign is to be assessed against targets based on:-

• Uptake of the Entry Level Stewardship Scheme (ELS) particularly relating to in-field options
• Retention of uncropped land
• Increased voluntary environmental management

This provides an excellent opportunity to demonstrate the industry’s commitment to the environment through recording fallow land on SPS claim forms and delivering just one extra environmental measure outside of any ELS agreement.

If those targets are not met by 2012, enforced regulation seems certain.

I have been heavily involved with many ELS and HLS applications and am convinced that the Scheme offers an excellent opportunity for farmers and landowners to obtain improved income from less profitable elements of their farms.

I know of no SPS claimant who is not motivated in part by improving the biodiversity on their farm often due to significant sporting and amenity benefits. Many of our clients already invest significant time and money into voluntary measures to improve habitats on their properties, but few shout about this to the Government and relevant pressure groups.

Through making sure the Government are aware of our existing efforts, embracing voluntary measures to improve habitats and by entering the ELS and making unprofitable parts of the farm profitable, we have the opportunity to prove that as custodians of the countryside there is no-one better placed to deliver the healthy environment which is essential for sustainable farming.

There is excellent support available to farmers interested in joining the Campaign from Frances Clayton at frances.clayton@cfeonline.org.uk or on 07778 920616 or alternatively contact me at the office.

Opportunities in a Changing Agriculture by Michael Bax

I attended the Andersons Spring Seminar on 25 March – excellent overview. Joined a focus group in the afternoon to consider the features of the agricultural industry that are not reflected in the general credit crunch scenario.

1. Finance is readily available, albeit at increased margins and with increased fee structures. Fixed rate borrowing is being looked at hard although a difficult decision for existing variable rate borrowers on the slender margins of two years ago.
2. The land market has boomed, once again showing the counter cyclical capability of the agricultural land market. There is still shortage of supply and excess demand, but low commodity prices must have an affect. Higher interest rates would also remove some of the heat. Nevertheless, one reported sale was to a Dutch farmer who had disposed of 500 acres in Holland for £20,000 per acre giving him £10M for a UK farm purchase. UK land prices are still well behind most of Northern Europe.
3. Everyone is noting increased attention from HMRC on capital taxation in the agricultural sector, particularly marginal APR cases.
4. Diversification – views vary from region to region and many consider diversification to be a diversion for farmers who should be focused on food production. Farmers are very “hands-on” in the management of business lettings and tourism has benefited from the weak pound. Development for diversification will continue to make use of redundant assets in the right location.
5. There are concerns over the tenanted sector where a significant disparity is arising as between tenants paying rent on every acre occupied, versus owner occupiers, who have significant collateral in property and lower servicing charges for their business. After rent, the tenant farmer is not generating sufficient cash for reinvestment, and reduced availability of unsecured credit in the industry could create significant problems. A representative from a major feed producer indicated that, whilst the industry is able to provide unsecured credit facilities, it has to be increasingly discerning as to who those facilities are available to. Any new business is now on direct debit terms only.
6. In the machinery sector, it is a fact that UK equipment is now the cheapest in Europe. In many European countries, particularly the Eastern Bloc, there is simply no finance available and whilst there is significant demand, there are virtually no sales in those countries.
7. On marketing, many farmers are seeking to spread risk by selling to a range of market outlets rather than sticking to old favourites. The industry is let down in many sectors by too great a number of selling desks. It was noted that the dairy sector probably only needs three and that effectively New Zealand now only has one, having been nearer 40.
8. In the pig sector, one major producer has a refined production system in place with highly effective input purchasing contracts. He has introduced franchising arrangements with other local producers, which are working well. Similarities with wine growing in France.
   
   

Negative Thoughts by Michael Bax

Sometimes I do just sit and wonder whether farmers have proper tabs on their business, and more importantly, whether land agents have a clue as to what is going on in the industry.

The review of Single Farm Payment is a very critical subject.

Why?

1. We are told that farming incomes are averaging approx. £20K per annum and that Single Payment averages approx. £20K per annum. On those farms therefore, there is no profit being earnt from production.
2. A noted columnist in Farmer's Weekly recently informed us that his latest costings indicated that his 09 wheat crop had cost £125/tonne to produce. He still has 200 tonnes in store worth £95/tonne. At a yield of 3 tonnes (and presumably quite a bit more), his shortfall is £90/acre. There goes his Single Farm Payment!
3. All the time the Single Farm Payment comes through on an annual basis at current levels, the status quo survives.
4. In the meantime the Eastern Bloc want a bigger share, the conservationists want more on Pillar 2, and the European Governments are generally bust and so want to pay out as little as possible.

One day it may not be alright next year!

Some Interesting Bullet Points from the Economic Briefing at AMC Agents’ Seminar 18 March 2010 by Michael Bax

• Current Bank policy is to hold more capital and more liquid assets in the form of gilts/bonds. These liquid assets could have been used for lending. Banks are also looking to extend lending terms and all of this increases costs.
• Equities are not likely to rise in value significantly.
• Oil currently at $70 per barrel will probably rise to +/- $100 per barrel.
• In the residential property market, house enquiries are down after sharp increases last year.
• General view is that house prices in the South East are overvalued by 10%/15%.
• 08 inflation ran at about 4%; 09 at 1% and 2010 forecast at 3% - mainly due to VAT increase, fuel increases and weak sterling putting the price of imports up.
• RPI is at 3.7% with the Consumer Price Index at 3.4% but the existence of massive spare capacity will bear down on inflationary pressure.
• Accordingly, the timing of possible interest rate movements will be very sensitive indeed.
• In the UK economy any growth has been mainly due to the car scrappage scheme and end of year consumer expenditure before the VAT change.
• In 09 consumer spending was actually down 3% with business investment down 15%.
• In the UK household debt is running at about 100% of GDP, corporate debt at 115% and Government debt at 50% - these are the highest figures ever.
• Accordingly, households and companies will try to save and there will be less income available to buy goods and services.
• The proportion of the working age population actually in employment fell to 70% which is the lowest since 1990.
• Nevertheless the public sector has generated 228,000 new jobs out of an overall loss of 799,000 since mid-2008.
• The general view is that fiscal policy is unlikely to change dramatically in 2010.
• The Government will cut spending – consumers cannot afford to spend and companies will be reluctant to spend – accordingly we have to increase exports.
• The forecast is for €1.20/£ and so the climate has never been better for exports.
• A hung parliament would be likely to create fiscal paralysis and foreign investors will stop buying UK debt.
• Accordingly, it is quite possible to see inflation dropping to 1% with the base rate staying at 0.5% through 2011.
• Nevertheless the long-term trend is likely to be increasing inflation but the worse case could be continuing decline and weakening sterling.
• In the exporting sector, we currently stand at 13% of GDP from a high of 30%, but our exports are good on high value items in skilled sectors, such as engineering, pharmaceuticals and professional/financial services.