Guy Gowing, managing partner at Arnolds Keys, says commercial property is an appealing prospect due to its potential for rental returns and long term capital growth.
Even the most gifted clairvoyant could not have foreseen that 2022 would bring three prime ministers, four chancellors of the exchequer and countless budgets, economic statements and ‘fiscal events’. Forecasting the prospects for commercial property in 2023 is undertaken in the hope that this year is calmer than last – in political terms, at least.
The impetus of the economy was largely frittered away in 2022. With the government’s eye off the ball, the economy drifted and many predicted dire financial consequences for 2023. But it looks like 2023 will not be as tough as we thought. True, inflation is high, but most expect it to fall rapidly in the second half of the year, perhaps back to 4pc. Whilst interest rates have risen, only a few think they will peak at the 6.5pc forecast last autumn. This year, rates will ‘normalise’ at what is still a relatively low rate.
After a decade of rock-bottom interest rates, commercial property investors will find borrowing more costly, bringing back into the equation how alternative investment sectors perform in comparison. At times of rising prices, property is perceived as an inflationary hedge. Commercial property will still be an appealing prospect, due to its potential for rental returns and long term capital growth, but investors will have to work harder and be more savvy to succeed.
The past year has seen a definite swing back towards workers being at their offices, and we are seeing a number of companies looking to improve their office space. Meanwhile, the market for industrial and warehousing buildings remains strong. Supply chain issues mean many businesses are holding more stock, the growth in online retail continues and manufacturing is doing surprisingly well locally.
On the high street we are seeing higher vacancies, but this is allowing an increased number of occupiers jockeying for the best positions. Investors need to be open to letting to new concepts and start-ups, perhaps on more flexible terms than before.
Norfolk remains an attractive location for investors in holiday lets too – and though the market has settled from its 2021 peak, this is a good place for those prepared to undertake management-intensive investment.
Rock-bottom interest rates and a relatively strong economy have made the past few years a benign environment for the commercial property investor. There are still good returns to be had, but investors will need to work harder in 2023. Good advice in terms
of choosing properties, letting policies and obtaining finance, will be key to success.
For more information, please visit www.arnoldskeys.com
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