Economist Bootle warns of ‘dangers’ in commercial property

Roger Bootle, one of London's best known economists, has expressed concern at BCSC in Manchester about the UK economic outlook and drew attention to a number of factors that could dampen prospects for future recovery.

Bootle's outlook for the commercial property market was generally upbeat, although he cautioned that a number of dangers remain.

Bootle said: "The commercial property market is in a much better position than it has been in a number of years from an investment perspective. I'm more bullish about it than I have been for a long time. Overall, the market is just about fair value and should provide investors with reasonable returns in the medium term.

"However, signs are gathering of excessive enthusiasm and there is a significant danger of a mini-bubble followed by a period of capital value falls. There is a real danger of the sector being over-bought."

Despite the "pretty positive backdrop" that has begun to emerge during the second half of 2009, Bootle also cautioned that the political imperative to rapidly reduce the fiscal budget deficit could lead to significant cuts in public sector employment and increases in VAT and income tax rates. This would have the effect of dramatically squeezing household income and consumer spending, thereby stifling economic growth.

Bootle continued: "Just as things start to improve, an almighty squeeze on tax and spending will clobber people's incomes. My suspicion is that a new government will impose a fair bit of pain and there is a real danger that they could over-do it. At the very least this will hold the recovery back; at worst, we could go back into recession."

The continued paucity of bank lending to businesses and consumers was another major concern.

Bottle said: "The money markets are almost back to normal, with banks lending to each other again. But they are not very keen at all to lend to ultimate customers, businesses and consumers, and this will continue. The banking system is effectively traumatised and lending is likely to remain sluggish for the long term."

Bootle was making a speech today at the British Council of Shopping Centres Conference & Exhibition.

He is managing director of London-based Capital Economics.