Nick O’Leary, head of commercial agency at Arnolds Keys, discusses why Norfolk’s economy is still strong.
Interest rates now stand at 5pc after rising for 13 consecutive months. 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 since 2008, when Alastair Darling slashed the base rate from 5pc to 0.5pc in just nine months.
We have not yet reached the peak either, with most commentators predicting the rate will top out at or above 6pc before it starts to fall.
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, especially light industrial units.
In the very week that the base rate returned to its 2008 level, Arnolds Keys completed on the sale of Downham Grove Industrial Estate, a small development of 11 units near Wymondham, at a price 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.
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 continues to be in strong demand, and 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.
Prospects for investors are linked to demand from occupiers, but the news here is encouraging. Despite predictions of recession, the local economy has proven to be remarkably resilient.
Though the next 12 months will still be challenging for many businesses, Norfolk’s economy is fundamentally sound and in a good position to withstand further economic troubled waters.
For more information, visit arnoldskeys.com
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