As expected, the Chancellor, George Osbourne has announced twenty one new Enterprise Zones across the UK. These zones will have a rate free period to further encourage development.
Enterprise Zones have been tried before, with some success, especially in the commercial property market London. This was back in the late eighties, but has led to the creation of Canary Wharf, which has allowed London’s financial sector to expand and is now arguably the world’s leading financial sector.
Commercial property has contributed to the expansion of the City of London. This expansion could not have taken place without this new area populated by ‘Grade A’ office space with large floor plates.
It will be interesting to see what the commercial property market and developers makes of today’s announcement. Whilst demand will no doubt be steered to the Enterprise Zones because of the perceived incentives, will the debt finance market be as enthusiastic as the Chancellor?
Commercial property Enterprise Zones are set for a finite period of time and the challenge to the property sector will be capturing demand, constructing the zones and financing the same within the fiscal period allowed, against the current economic backdrop.
There could also be consequential knock on effects. Existing commercial property located near these new zones are likely to to suffer tenant migration in favour of the new zones. The changes to the Rating system, proposed for this coming April, have been deferred until October 2012. When these changes become effective, it will further compromise existing investors and Landlord’s located near these proposed new zones.
Stimulus for the commercial property market as a whole, would be welcomed by the property industry. This sector has probably suffered more than most during the recent financial crisis. Despite press releases from the banking sector regarding lending, most professionals within the sector would probably disagree.
The Chancellor is forecasting growth of 1.7% for the year, 2.5% for next year and 2.8% for 2013. If this growth is delivered, will this feed through to the commercial property sector? To partly answer this question, confidence will be the key element. The present government needs to properly understand the real challenges facing the commercial property sector. The proposed Enterprise Zones may turn out to be relatively small stimulus compared to the commercial property sector overall.
The proposed planning reform proposals could produce a larger stimulus than all of the forgoing. We eagerly await receipt of the detailed measures!
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