top

2023 kent property market

THE ANNUAL GUIDE
TO INVESTMENT &
DEVELOPMENT IN KENT

Scroll down

CAXTONS’ PROPERTY
MARKET OUTLOOK

This year’s outlook presents a markedly different picture to that of 2022, when in late summer, inflation peaked at 10.1%, the effects of which we have since seen ripple through the UK economy. High inflation continues to hamper the UK property market, albeit in August and September 2023, inflation – the consumer prices index (CPI), rose by 6.7% over 12 months, down from the 6.8% reported in July.

While it is expected that the UK will avoid a recession, the UK’s interest rate at 5.25% represents a 15-year high, up from 2.25% that we reported this time last year. However, The Bank of England’s decision not to raise rates in September is a positive for the property market.

The ONS estimate that GDP fell by 0.5% in July 2023 following growth of 0.5% in June 2023. Looking at the broader picture, GDP increased by 0.2% in the three months to July 2023.

Construction cost inflation appears to have stabilised at 3% and is expected to reduce to 2.5 % by 2024. (ONS). There are other indications that the economy is improving slightly, and the fundamentals within our economy are stronger now than in previous downturns.

The investment Property Forum (IPF) consensus of independent forecasts shows ‘all property’ returns have reduced slightly but office and standard retail forecasts have improved, to 3.3 and 5.1 respectively. On the other hand, retail warehouse and industrial returns are predicted to fall for the period 2023 to 2027.

Mounting household costs continue to affect spending on the high street which is still struggling with the move to e-commerce. However, green shoots can be seen as coffee shops, hospitality and independent traders open new stores and consumers demonstrate they still want to visit the town centre. What can’t be ignored is the consistently high number of closures on the high street, with more than 17,000 shops closing across the UK in 2022, nearly 50% more than in 2021. However, Kent’s out of town retail, similar to the rest of the UK, continues to flourish with Bluewater and Ashford Designer Outlet attracting new names. Some national retailers, especially supermarkets such as Aldi and Lidl are pushing ahead with expansion plans with many new openings in Kent this year and a number planned for next year.

5.5%

UK All property return forecast for 2023-27, down from 6.4% for 2022-26.

Source: IPF survey of independent forecasts for all UK commercial property, September 2023

UK Total Return IPF Consensus Forecasts,average over 2023/27 period

UK All Property annualised total return forecast 2018

Aegel Trade Row, Quarry Wood Industrial Estate Aylesford.

UK All Property annualised total return forecast 2018

9.78%

Average industrial and distribution rental growth in Kent, 2023, slightly ahead of last year.

Caxtons

Kent Prime Yields

UK All Property annualised total return forecast 2018

Now the hybrid office working model is here to stay, companies are slowly consolidating their office requirements and coming to terms with what size they require. The market is swinging back to the demands of the tenant with shell and bespoke floor plates being offered. Landlords also have to be mindful of the ESG needs of the tenant and that by 2027, office buildings must have an EPC rating of at least C. This in turn will increase the specification of the building and may have an impact on rents, as could supply which is slowly tightening in Kent due to the continued loss of office space to residential conversion. Although there has been minimal rental uplift in Kent since the last report, as usual those locations commutable to London, are seeing growth. Sevenoaks is experiencing both rental growth at 17% and speculative development off the back of this.

Although the county has seen limited business park rental growth this year, occupancy levels are at an all-time high due to the quality of what is on offer. Kings Hill has achieved 17,014ft2 (1,580m2) of transactions over the last 12 months involving 5 tenants. In addition Kent is offering some of the largest floor plates in the South East. Although not in one suite, Crossways Business Park is offering 20,663ft2(1,920m2) at Riverbridge House. Nationally and specifically in ‘the golden triangle’, science park take-up has never been higher. Kent continues to offer a similar high standard of accommodation to its contemporaries further afield. Kents’ two largest business parks, Discovery Park and Kent Science Park, both offer bespoke accommodation tailored to the requirements of the sector, including new starter units.

Industrial rental growth in Kent is slightly ahead of last year’s figure at 9.78% with Maidstone and Medway achieving 18%, well ahead of the South East average. There continues to remain a lack of stock which has gone some way to help take up. Clearbell’s LOC8 in Maidstone has practically pre-let the whole of its first phase and part of its second phase. Relatively low land values historically in Kent compared to areas around the M25 have made development feasible. Although similar to the rest of the UK, values have dropped 25 to 50% in some locations. However, significant transactions are still going ahead, with G-Park Sittingbourne’s sale to Panattoni with a GIA of 644,549ft2 (59,882.2m2) on the 10.56ha site at Kemsley being one such example. Kent offers the largest speculative buildings in the South East at Panattoni Park Aylesford – 630,000ft2 (58,528m2), and Bericote’s Powerhouse, Dartford – 302,790ft2 (29,728m2). Kent also has several sites for design and build such as Goodman’s London Medway Park.

Aldi, Kings Hill, opened in late 2022.

UK All Property annualised total return forecast 2018

With the UK investment market seeing yields move out in May 2023 by at least a point, yields are now moving back in with industrial multi-let investments at 5.25%. Investors are picking up well priced assets, particularly industrial and will not wait for any further correction in the market. Although there are fewer investments on the market, one of the largest sales within the industrial market in the South East was achieved at Ridham Dock comprising 119 acres (48ha) and Medway One in Rochester is being offered comprising 583acres (236ha). Kings Hill Business Park is also being offered, quoting £68.2m.

Residential sales are seeing their biggest drop in a decade hindered by soaring borrowing costs and the withdrawal of Help to Buy, making it harder for first time buyers to get on the property ladder. Annual house price growth in September edged down to -5.3% (Nationwide), but Land Registry figures for Kent show a much more mixed picture with some areas seeing increasing prices and others seeing decreases.

Land values have dropped by 10-11% from their peak although some volume housing developers and SMEs are re-starting building as construction and labour costs start to level out. There continues to be a problem with nutrient neutrality in the River Stour catchment area. The government has made proposals to ease the restrictions.

The economy is showing early signs of improvement and while times are still uncertain, we have a better picture of the likely impact of the economy on the property market in the coming months. Key indicators suggest that the Kent property market is capable of weathering the storm.