The impact of the general election

We analyse data from the last four election years to discover whether the general elections impact on the investment market.

26th January 2015, words by Kevin Mofid

 

Do general elections impact the investment market?

■ Many industry commentators have suggested the UK General Election, set for 7th May 2015, as a potential risk for the investment market as investors could use the election as a reason to delay investment decisions, with volumes suffering as a result.

■ With the 2015 election forecast to be the “closest since 1945”, Savills have examined data for investment volumes and prime yields for the last four election years. This analysis has highlighted some points for discussion.

■ Starting in 1997 when the investment market was already performing well, the election month of May saw a 41% rise in the number of investment deals which was also way above the average volume of deals for a typical May which stands at 225. Interestingly however market sentiment did change around the election with the Savills prime yield moving out by five basis points before continuing its downward trajectory for the year ending at 5.73%.

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■ The 2001 and 2005 elections saw the markets largely remain in tandem with the prevailing market conditions as investment volumes in 2001 remained close to their long-term averages. On the other hand 2005 saw a post election drop off in deals which soon recovered to see deal volumes outstripping the long term monthly averages. In both cases the Savills prime yield remained in line with market sentiment with no blips around the election months.

■ As the recovery started to take hold in 2010 the investment market reacted accordingly with a sharp upswing in total investment volumes with the election month of May actually seeing a rise in the total amount of deals on a national basis. However the change of government and subsequent uncertainly regarding the formation of the Conservative/Liberal Democrat coalition saw the Savills Prime yield move out by 10 basis points before returning to pre-election levels later in the year.

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Start watching the polls

■ What the data suggests is that a predicted change in Government has a short-term impact on market sentiment but that actual investment volumes are more closely related to the prevailing market conditions at the point in time.

■ In both January 2001 and 2005 Labour held a substantial polling lead over the Conservatives which the markets took into account which reduced volatility in both investment volumes and yields. However, in January 2010, five months before the last election the conservatives had opened up a 10% lead in the opinion polls resulting in volatility around the election.

■ A recent poll by Opinium, shows Labour with a 1% lead over the Conservatives with many suggesting another coalition Government is likely. As the electorate gets more comfortable with this it may result in the market taking this into account too and therefore the impact of the election on the Investment market will be negligible, as seen in 2001 and 2005.

 

 
 

Key Contacts

Kevin Mofid

Kevin Mofid

Director
Commercial Research

Savills Margaret Street

 

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