Enduring cost pressures on business, muted consumer activity and an impending Brexit have all challenged UK plc in 2018. Despite headwinds, transactional activity and deal pipelines remain resilient, and notwithstanding the spectre of Brexit, a strong start to the year is anticipated, according to the latest annual report by specialist business property adviser, Christie & Co.
The report, ‘Business Outlook 2019: Navigate, Innovate, Accelerate,’ reflects on the themes, activity and challenges of the previous year and forecasts what 2019 might bring across the industries in which Christie & Co operates, including healthcare, hospitality and retail.
Despite the increase in interest rates to 0.75% in August 2018, the cost of borrowing remains at an all-time low, as refinancing opportunities remain attractive, which led to strong demand for Christie & Co’s valuation services. Average prices remained economically positive throughout 2018 across almost every sector in which Christie & Co transacts. These are as follows:
Dental: + 5.2%
Pharmacy: + 2.8%
Care: + 3.1%
Childcare: + 8%
Retail: + 1.3%
Pubs: + 2.7%
Restaurants: - 1.3%
Hotels: + 4%
Funding will remain readily available from all the main UK lending institutions with increased competition from challenger banks. The report also notes a continuation of the transition in the type of investor active in the UK with a shift away from investors with debt positions. This has created a gap for new investors and a return of more conventional private equity funds, alongside the resurgence of traditional sources of European capital.
It has been largely ‘business as usual’ for SMEs across most of Christie & Co’s markets despite the spectre of Brexit, as reflected in Christie & Co’s transactional activity in 2018. Uncertainty fuelled by ongoing Brexit negotiations only became apparent from the end of the year leading up to the crucial vote on the Brexit deal in parliament.
The UK’s decision to leave the EU weakened economic growth with real UK GDP growth slowing through 2018, a trend which is expected to continue into 2019. This contributed to an increase in business distress during 2018 with enduring cost pressures on business and subdued consumer confidence in household finances, due partly to weak pay growth, all having an impact.
The report anticipates further business failures where enduring cost pressures erode profitability, impacting the availability of investment required to maintain operator standards and succeed in competitive markets. CapEx and reinvestment will become increasingly critical where there has been under-provision, resulting in assets tiring and trading performance deteriorating. The availability of cheap funding, ultimately affecting capital expenditure and value, could be threatened by the outcome of Brexit.
Darren Bond, managing director – valuation & capital markets at Christie & Co comments, “We remain optimistic about the demand for valuation services heading into 2019, following resilient trading performance across our markets in the past 12 months. The ongoing political and economic uncertainties surrounding Brexit negotiations, however, will impact on the level of that demand.”
Stephen Jacobs, director – bank support & business recovery at Christie & Co comments, “Uncertainty and delay in working towards a satisfactory Brexit outcome threaten an escalation in both political and economic risk, affecting business investment decisions and consumer confidence with the potential to exacerbate business distress.”