DEMAND FOR FREEHOLD COMMERCIAL PROPERTY REMAINS RESILIENT

So interest rates have risen for 13 consecutive months, now standing at 5%, writes Nick O'Leary. 

Although that figure is actually something close to the historic average, it does represent a step away from the 15 years of cheap money that we have enjoyed ever since Alastair Darling slashed the base rate in the opposite direction in 2008, from 5% to 0.5% in just nine months.

It is clear that we have not yet reached the peak, either, with most commentators predicting the rate will top out at or above 6% before it starts to fall back.

Those paying commercial mortgages will be as affected by this as home owners, but so far at least the hike in rates has not had too much of an effect on the demand for commercial freeholds, and especially light industrial units.

In the very week that the base rate returned to its 2008 level, we completed on the sale of Downham Grove Industrial Estate, a small development of 11 units near Wymondham, at a price some way above the initial asking price.

At the same time, we are marketing or negotiating freehold deals throughout the city and county including Whiffler Road, Aylsham, North Walsham, Attleborough and Fakenham.

The interest rate rises will have dampened demand from those dependent on borrowing to finance their investment, but for those holding cash, the rental yield on this kind of property still outstrips what is available elsewhere, especially as those rate rises have been slow to translate into significantly better returns on cash investments.

We are seeing an increased focus on yield, and buyers are looking for realistic prices; as ever, the market will find its own level.  But there is no sign of a significant fall-off in demand from buyers, nor a meaningful fall in freehold prices.

Commercial property along the A11 corridor in particular (Downham Grove is just a few hundred metres from an interchange with the road) continues to be in strong demand, and the reopening this summer of the resurfaced stretch of road between Wymondham and Spooner Row will only add to the attractiveness of this location.

Scarcity of supply, the combination of rental income and capital growth, the continued ability to raise commercial finance, the yield gap, and the scope for the active investor to enhance their property: all of these are reasons why freehold commercial property is proving so resilient.

Of course, prospects for investors are inherently linked to demand from occupiers, but fortunately the news here is encouraging as well.  Despite predictions of recession having been with us for more than two years, the local economy has proven to be remarkably resilient, and while I am not going to pretend that the next 12 months are not going to be challenging for many businesses, Norfolk’s economy is fundamentally sound and in a good position to withstand further economic troubled waters.