It is no secret that prices on everything have gone up over the last 18 months. But few price increases have had as profound an impact as those we have seen on fuel. Fuel is energy. And if nothing else, the modern world runs on energy. When the price of fuel goes up, everything else is affected – including commercial property values.
If you have not yet made the connection between higher fuel prices and lower property values, you are about to read something that might surprise you. Bear in mind that lower-than-normal commercial property values will not begin to recover until fuel prices fall.
Energy Is a Lot More Expensive
Providing a foundation for the rest of this post is a recent report showing just how expensive energy is to the average UK consumer. According to the Department for Business, Energy and Industrial Strategy, the average West Oxfordshire household paid £1,302 for electricity and gas in 2021. That same household will pay £2,483 to use the same amount of energy this year.
This probably isn’t news to you. Energy is a lot more expensive. Not only the electricity and gas you use, but also the energy used to produce that electricity and gas. You also know that paying more for fuel and energy means you have less income to spend on other things. Therein lies the problem.
Less Disposable Income Affects Businesses
Consumers having less disposable income to work with has a profound effect on business. If you can barely afford to put food on the table, you’re not going to spend on more expensive takeaway when you can cook at home for less. You are also not going to spend money on unnecessary consumer goods like mobile phones, televisions, etc.
All the businesses you normally patronise will miss you. They will also miss your friends, neighbours, and all the other people who previously shopped with them. Their businesses and bottom lines will suffer. They will have less income to put back into their operations.
A Faltering Economy Affects Property Values
We have seen how higher fuel prices influence consumer spending. We’ve seen how less consumer spending influences business. The end result of this unhappy trickling down is less economic activity and, ultimately, a slower economy overall. That’s where we are in the UK now.
Unfortunately, economic slowdown ultimately leads to falling commercial property values. Commercial property isn’t worth as much because property owners either don’t have the means to run successful businesses or cannot find business tenants to rent their space. There just isn’t the economic output to make the properties attractive. And as with all things real estate, if property isn’t attractive, its value declines.
Fuel and Energy Define Economies
Whether we like it or not, fuel and energy define economies. Every nation’s economy runs on the energy it produces. When energy supplies are inadequate, economies falter. Likewise when energy prices go up. If anyone doubts this fundamental truth, a simple study demonstrating a correlation between energy prices and overall economic trends proves the point.
Commercial property values in the UK continue being dragged down by poor economics rooted partially in higher energy prices. Until we bring down the cost of fuel and electricity, the economy will have a challenging time rebounding. Commercial property values will continue to stagnate or fall in the interim.
What does this mean to you? It means now might be the right time to sell your warehouse, office building, medical facility, bar, pub, restaurant, etc. We are in the business of buying commercial properties. We are more than interested in taking a look at what you have.