Sam Elkington: A cautious note of optimism

This story is over

Cranes, cranes, cranes and more cranes on the Lincoln horizon. At least five in the city centre and others surrounding. It has been a long time coming and this shows, I think, the renewed optimism and activity for the city as a whole.

The effects of the 2008 recession are now well behind us but the market is still recovering and the prospects are very encouraging and unlikely to reach the dizzy heights of nearly 10 years ago.

However, it feels as though the market that we have is very sustainable and hopefully here to stay.

Record low interest rates on borrowing and cautious lending by banks and the financial institutions has created a robust market. Where 6% yields and below on commercial property investments were historically only seen in prime retail locations in city centres they are now becoming the norm in a variety of investment sectors.

For example, with the trend towards convenience food stores in village and neighbourhood locations these properties have become very desirable for investors. We have handled eight transactions in the last year, either for individual investors or the recently created Lincoln Property Syndicate.

These are usually showing 10-15 year secure income, based around the national covenant with fixed growth on rent reviews. Add a bit of low gearing and an initial 6% return can increase significantly.

Likewise new industrial developments of individual workshop units offer the opportunity for either individuals or businesses to own their own business premises or investments for less than the price of an old terraced house.

These typical situations have helped create a strong market, but also one that seems very sustainable. With the lending institutions being cautious with their borrowing, usually no more than 60% of the Market Value, one feels confident going forward.

The effects of Brexit caused a two month period of inertia in the local and national market. However, we have seen a cautious return to trading by both investors and owner occupiers.

There is a good demand for freehold properties by both operational businesses expanding and/or relocating. Construction margins on these properties remain very tight and it is a sign of the competitiveness throughout all sectors.

The current reviews of the Local Plans throughout the county is also bringing forward a number of development opportunities for residential development sites.

We have traded over 1,000 building plots in the last eighteen months to national and regional residential developers – again a sign that they feel the confidence that other business sectors are.

There is an issue with the processing of planning applications throughout a number of planning authorities because of the increased regulatory requirements that are imposed by national government that developers have to jump through.

But at least the market is such that developers will now buy sites – although it has to be said that generally only the well-presented sites are being chosen by developers. We feel there will be a number of sites that struggle to be sold in the open market as the national and regional developers are building up their land banks for future development.

So the business market looks to be on the road and moving forward with opportunities present in a number of sectors.

Hopefully the government’s Autumn Statement will sustain and encourage this recovery rather than restrict it – letting the market make its own bed to lie in with a bit of central government assistance is always welcome. It is when the bureaucrats start meddling in the process that the inertia sets in.

Hopefully Brexit, when it happens, will make this a thought process of the past.

Lincolnshire, as usual, looks set fair for the rest of this year and moving forward into next year. Let’s hope that this continues.