For commercial land developers, one year can usually blend into the next with little to distinguish between the two. Since the general recovery from the 2008 financial crash, most of the industry has remained largely the same, with few fluctuations as each year passes. Land remains a valuable commodity that can generate revenues for developers, but it’s safe to say the opportunities available have somewhat standardized.
That is, until 2018.
All of a sudden, the commercial land developing industry finds itself in a changeable state once more. 2018 could prove to be a year when the almost-stale picture begins to change, so anyone involved in commercial development is going to need to ensure they take the necessary steps to keep up. Here’s what developers need to know as we progress into this brave new world.
The potential of interest rate rises
Most commercial development projects rely on borrowed money for at least part of their financing, so the prospect of an interest rate rise is worrying to say the least. Unfortunately, recent turmoil in the markets and stronger-than-expected jobs growth has lead to a general consensus emerging: interest rates are likely to rise in 2018 at least once, if not more.
If — or perhaps “when” is the better word — this happens, commercial developers will need to scrutinize their budgets and financial plans to ensure projects are still viable. It is worth remembering that the interest rate rises will only be small initially, but even this could mean substantial extra costs — and impacted profit margins — in wide-scale developments.
Construction worker shortages
The issues with construction worker shortages have been a growing concern for commercial developers, meaning that while projects may be financially viable, the workforce needed to undertake these plans simply isn’t there.
Unfortunately, there’s no sign of this issue beginning to abate. There are still more construction jobs that there are construction workers, and the problem is particularly pressing for skilled professionals in the trade. This continued issue means that commercial developers will need to ensure their construction firms have the staff available to meet demands, as well as plotting contingencies for any delays that may be caused by a lack of skilled staff.
Tax cuts come into play
Finally, some good news at last! The recent Tax Bill should mean that commercial developers have more cash available to advance with projects. The sharp fall in the corporation tax rate is good news for these firms, and we should see more developments begin to take place as the impact of the tax cuts is fully realized.
This may mean larger-scale projects become more viable and could, theoretically, help construction firms take on more apprentices in the hopes of meeting the skills gap that currently exists. Finally, the impact of the potential of interest rate rises could be offset by firms having more cash funding available. All of this is very good news for commercial developers.
2018 looks like it may be a pivotal year for commercial land development. While some signs are worrying, the overall picture suggests that opportunities should be plentiful, especially towards the third and fourth quarters of the year.