The Rural Report from Howie Kent & Co – Autumn 2023

Growth pauses in rural commercial property market as inflation and interest rates bite

Growth in the rural commercial property market in Essex and surrounding areas has stalled in recent months, as rising inflation and interest rates have put pressure on businesses. According to data from two large national firms, the average asking rent for rural commercial property in Essex fell by 0.5% in the first quarter of 2023, compared to the same period last year. The number of properties available to let has also increased by 10% over the same period.

In recent years, institutional investors and pension funds have invested heavily into listed companies involved in the development of large warehousing projects (Amazon type warehouses) and it is interesting to note that many were divesting and reducing positions from that sector at the end of the last quarter of 2022.

There are a number of factors that have contributed to the slowdown in the market. Rising inflation is putting pressure on businesses’ budgets, making it more difficult for them to afford high rents. High energy costs have also reduced margins and caused uncertainty. High interest rates are also making it more expensive for businesses to borrow money, which could lead to some of them being forced to downsize or relocate.

In addition, the war in Ukraine has also had an impact on the market, as it has disrupted supply chains and led to increased uncertainty. This has made businesses more cautious about making new commitments, such as signing long-term leases. There is little doubt that many businesses are currently pausing to consider the impact of the inflationary pressure and prohibitive cost of borrowing, before either changing location or implementing expansion plans.

Opportunities
Despite the slowdown, the long-term outlook for the rural commercial property market in Essex and surrounding areas is positive. The region is still home to a diverse range of businesses, and the proximity to London makes it an attractive location for businesses and should help to maintain demand for commercial space in the long run.

It is too early to say whether the slowdown in the market is a temporary blip or a sign of a more fundamental shift. However, agents and landlords who are looking to let rural commercial property in Essex and surrounding areas should be aware of the challenges that they face and be prepared to adapt their strategies accordingly.

The basic rules still apply:

• Offer competitive rents
• Be flexible with terms
• Market your property effectively
• Be aware of the latest trends in the market
• Adapt your strategies accordingly

As the market changes with a higher cost base, successful businesses will adapt, change direction, diversify, consolidate, and seek to reduce overheads. This provides owners of rural commercial property with an opportunity to offer space, be it warehousing or yard space, at competitive rates when compared to London rates, which in turn, provides businesses with the opportunity to reduce overheads.

One way to increase the chances of finding a tenant is to use a rural lettings agency that understands the market and deploys strategic marketing methods. With careful planning and execution, landlords can overcome the challenges of high inflation and high interest rates and continue to let rural commercial property successfully.