Rising costs will undoubtedly be a concern for you and your business. Which of the following rising costs are you mostly concerned about impacting your business in the next 12 months?
Access to finance and rising interest rates
31%
The current cost of living crisis has affected many people and businesses, and the concerns surrounding its impact in the next 12 months vary from business to business. 23% of respondents highlighted they are most concerned about increased costs of materials while 31% of respondents are most concerned with access to finance and rising interest rates. Interest rates have been on the rise, particularly the bank rate has gone up by four percentage points since August 2022 from 1.25% to 5.25% in August 2023. The main driver behind the increases is to control the inflation rate in the UK as this is currently at 6.3% (August 2023), far from the target of 2% inflation rate.
A lower proportion of respondents highlighted they are concerned about environmental regulation and planning restrictions. This is in line with expectations given that businesses are often given more time to plan for governmental policy changes before they are implemented, whereas factors such as interest rates and inflation rates are more volatile and businesses have less control to factor this into their strategic planning. Operating in a high inflation/rising interest rate environment requires real estate businesses to constantly re-evaluate their investment and development opportunities, having to prove that they are both nimble and robust.
Our findings
01
23%
Increased material costs
16%
Other
15%
Environmental regulation
15%
Planning restrictions
Following the recent introduction of Full Expensing (FE), where capital expenditure is incurred on various qualifying plant and machinery, FE can provide accelerated tax relief (for expenditure from 1 Apr 2023 to
31 March 2026), how will this affect the timing of your proposed projects?
02
02
01
Our findings
Findings
Analysis
The attractiveness of the new FE rules may not be very high for many businesses as the Annual Investment Allowance (AIA) remains at £1 million for plant and machinery. The new FE rules were announced at the same time AIA was confirmed to remain at £1 million for the foreseeable future. Therefore, FE would only become more desirable for groups incurring capital expenditure that exceeds £1 million annually.
23% of respondents may consider bringing forward programmed projects to take advantage of the FE rules. On the other hand, 77% of respondents either stated tax relief is not considered on project expenditure, or tax relief is not a key driver.
FE rules are in place to incentivise more capital expenditure, however the key driving factor behind capital expenditure is often down to the commercial needs of the business. Due to the complexity and continued change to the capital allowance system many people do not have current knowledge of the system, and thus it is too difficult to factor into initial investment decision process. This was experienced at the time the super deduction of 130% was in place; the short window in which the relief was in place largely benefited businesses whose investment plans coincided with this incentive in terms of timing only.
Capital expenditure requires longer lead times (sometimes up to five years), therefore we find most businesses are not able to readily utilise temporary investment incentives.
31%
Tax relief is not considered on our project expenditure.
46%
Tax relief is not a key driver on our project expenditure – we will not bring forward programmed projects.
23%
Tax relief is a key driver on our project expenditure – we may consider bringing forward programmed projects to take advantage of FE rules.
Does your business have a well-established diversity and inclusion programme?
03
Our findings
62% of respondents stated they did not have structured diversity and inclusion programmes nor had plans to introduce one. Meanwhile the other 38% of respondents stated that they have had a programme in place for over two years. This could be down to a multitude of reasons, including size and geography as well different priorities such as focussing on incentives in order to recruit and retain staff. With a tight labour market, it is surprising to us that there is such a wide divide on this result, we would expect this gap to narrow over the next few years as such factors are increasingly important in recruiting and retaining talent.
38%
We have a programme that has been in place for over two years and we believe is having a positive impact on staff attraction and retention.
62%
We don’t have any structured diversity and inclusion programme and we have no plans to do so.
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Findings
Analysis
Findings
Analysis
What are the key diversity and inclusion challenges facing your organisation?
04
A large proportion of respondents (23%) believe a key challenge is better communication with all types of employees within the workforce. This could be expected in larger organisations where it may be more difficult to implement a structured diversity and inclusion programme and ensure it is being put in place across the entire business with the same level of prioritisation as other key business objectives.
We see this from our respondents as 17% believe that a key challenge is attracting a more diverse workforce and securing the best talent. In many cases there could be a small pool of talent to choose from when recruiting and it would prove difficult to ensure both a diverse workforce, and the best talent is recruited.
Another challenge highlighted by our respondents is helping all employees feel safe to be themselves at work with 17% of respondents agreeing with this challenge. This exemplifies the important considerations to diversity and inclusion, given that once a company attracts and recruits a diverse workforce, it becomes paramount that all employees can feel safe to be themselves, so they become more productive and committed.
23%
Better communicating with all types of employees within our workforce.
Our findings
Findings
Analysis
17%
17%
Helping all employees to feel safe to be themselves at work so they become more productive and committed.
Attracting a more diverse workforce and secure the best talent.
In regards to recruitment, which of the following actions have you taken to attract candidates?
05
Most of the respondents have increased salaries and benefits in order to attract candidates. 32% of respondents have actioned this. During a period of higher living costs short terminism prevails and employees favour immediate gratification over deferred reward and therefore focussing on pay and tangible benefits can be a winning strategy when attracting candidates
Another step taken was to introduce flexible/hybrid working options, 24% of our respondents have actioned this. This trend was clearly accelerated by the pandemic but it is a trend that has continued to apply and ranks high in a candidates wish list, however increasingly research is suggesting that there may be an element of seasonality to this with less of a focus on this from winter candidates.
20% of respondents have worked on values, their culture, ESG etc to make roles more meaningful. As mentioned in our second outlook report, ESG compliance is becoming an increasingly significant area for businesses to consider. Re-evaluating culture and values around this would be a convincing step to attract talented candidates as it demonstrates a clear direction for the business.
24%
Introduced flexible/hybrid working options.
32%
Increased salaries and benefits.
Our findings
Findings
Analysis
9%
Working out what actions to take as a result of the information we have gathered so far.
13%
Providing the appropriate flexible working arrangements to allow women to return to the workforce.
4%
Other
4%
Collecting information about the diversity of our employees.
4%
Overcoming prejudice against certain minority groups within our workforce.
9%
Improving our employee engagement survey scores.
20%
Worked on values, ideology ESG, etc to make roles more meaningful.
16%
Greater focus on training, development and opportunities for growth.
8%
Developed a more inclusive culture.
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Our conclusion
The next 12 months will prove difficult for many real estate businesses, with the main challenges remaining access to finance and rising interest rates being at the forefront. The changes in the capital allowances system may not have an immediate benefit to all businesses but capital-intensive businesses will benefit from the introduction of full expensing regime – particularly if the timing coincides well with their own investment plans but from a government policy perspective, it would appear unlikely to significantly change any business behaviour.
There are clearly challenges in managing a modern agile workforce including improving the diversity and inclusion within the organisation while still meeting other key business objectives. Our findings suggest that there is quite a separation as to where businesses are in this respect. There are several measures being actioned to ensure businesses attract and retain employees such as increasing salaries/benefits and encouraging flexible/hybrid work. All of these changes in the workplace culture and practices are required as businesses strive to remain competitive.