With the ONS downgrading estimates of the size of the economy, and the Office for Budget Responsibility softening its forecasts for growth Strutt & Parker has argued that Chancellor was always likely to cast around for politically tasty targets for tax increases in his latest Budget.

The changes to Stamp Duty Land Tax on non-residential property would appear to confirm that the Chancellor has finally trained his eye on commercial property. Indeed the Bank of England flagged the dangers posed by an overheating commercial property market in its Financial Stability Report in December – so perhaps commercial property should have seen this coming. Strutt & Parker also cites a political element too highlighting that in recent surveys small businesses have indicated they are somewhat more pro-Brexit than larger businesses, and hence in need of some political nudging.

Andy Martin, senior partner at Strutt & Parker said: “On the investment side, we don’t expect a move to a top-slice tax rate of 5%, up from 4%, over £250,000 to be catastrophic for the top-end of the commercial market; buyers and sellers are likely to end up swallowing it between them. Although it may encourage investors to lengthen hold periods, in order to amortise the increased transaction costs over a longer period. That said, in markets like the West End, investors’ hold periods have been lengthening for some time, and hence transaction costs are already less of an issue for much of the market.

“For major occupiers, an increase to 2% SDLT for the slice of a new lease’s net present value over £5milllion is, again, not likely to impact the market greatly. In the context of costs that major occupiers pick-up when leasing – dilapidations and business rates spring to mind - it’s not a deal-breaker but rather an irritant stealth tax.”

Dan Miller, head of occupier services at Strutt & Parker added: “For smaller occupiers, who, for example, have the majority of their staff in one office in central London, this may impact behaviour rather more. Horse-trading around lease lengths will likely increase when agreeing new leases and investors will have to work a bit harder to get the SME community to agree to long leases.”

Strutt & Parker believes that one positive from these changes is the lessening of the stamp duty and business rates burden at the lower end of the market, suggesting this will increase demand from independent retailers. They also predict a positive impact on offices, citing that a lot of underlying demand for London offices is coming from start-ups or larger occupiers’ satellite offices – which stand to benefit.

Stephanie McMahon, head of research added: “In reality the occupiers of commercial property have been driving down lease lengths for some time, and these marginal SDLT changes are unlikely to shift that major structural change one way or another. The best bet for investors looking forward will be to embrace the new nimble occupier of the future; who will certainly pay more upfront for the flexibility that the Chancellor has, perhaps unwittingly, just given them further encouragement to pursue.

“The main risk may be a bit further over the horizon. With the Office for Budget Responsibility proving to be consistently optimistic in its forecasts, the Chancellor will likely come back for more and the commercial property market may find its days of flying below the political radar are numbered.”