Kent has not been immune to the downturn in the retail market. Overall, prime high street rents in the county have dipped -2.7% losing some of the gains made in 2016 and 2017. Towns at the upper end of the rental scale have struggled more as affordability dampens demand.
Kent average prime high street rent
Source: Cradick Retail
However, Kent also illustrates many success stories as town centres are reinvented in the face of this period of structural change. The first phase of Legal & General's £53m St James development in Dover, providing 14,586m2 (157,000 ft2) of new leisure and retail space opened in the spring, while the Spirit of Sittingbourne regeneration reached its first milestone this year. The impact of such schemes on rents inevitably takes time, particularly given the challenging backdrop. The potential impact is exemplified in Ashford where the vacancy rate has fallen following the borough council's purchase and management of the now near full Park Mall shopping centre, combined with activity across the wider town.
High streets are evolving their role with a greater mix of occupiers, aided by rental adjustments. In January
The latest Local Data Company research, undertaken for Property Week, shows Kent has seen a sharp improvement in occupancy levels (August 2018) when compared with the national average.
Average High Street vacancy rate
Kent 7.80% 8.90%
UK 11.30% 11.00%
Source: Local Data Company, August 2018
The county saw the two largest retail transactions in the south east in 2018- Royal Victoria Place in Tunbridge Wells sold to British Land and the Whitefriars Quarter sold to Canterbury City Council.
These deals contributed to Kent seeing 30% of all retail investment transactions in the south east in 2018 (Source: Caxtons).
Both transactions underline the potential opportunities seen in town centres where investors and local authorities work together to deliver a holistic long-term strategy for vitality underpinned by a robust and diverse economic base.
Director - Business Space, M25 East
The 2018 Kent Property Market Report launched on 1st November and reveals recent commercial activity is led by a powerhouse of small businesses and not, as in the past, by larger established companies and corporations, and discloses that that the level of businesses migrating to the county is rising.
The Report, researched in the main, by headline sponsor Caxtons Chartered Surveyors, is published in collaboration with Kent County Council and Locate in Kent.
The launch of the Report revealed many positive aspects to the property sector in Kent, but with echoes of national weaknesses caused by economic uncertainty and global trade deals being 'repositioned'.
Some of the findings in the Report reflect changing global trends:
Despite a national crisis on the high street, towns and cities across Kent have survived better than many. In the main this has been due to regeneration projects and management strategies, as well as increased town centre dwellings, which have all contributed and underpinned the life of some of Kent's conurbations.
In parallel with other counties, Kentish towns have lost major players from the roll call of well-known high street names. Conversly, this has provided opportunities allowing independents and new enterprises to enter the market and occupy prime positions that they could not have considered in the recent past. Having said that, towns with higher rental values are not faring as well and struggle to achieve financial expectations.
However, the Report highlights that the diminishing attraction of high street retail has had a knock-on for those who feed the purchasing frenzy of online shopping. The industrial sector has been the beneficiary and there distribution space is in high demand. Both Amazon's 34,000m2 last mile sorting centre in Medway, scheduled to open before the end of the year and Ocado's plans for a 1.92ha site at Littlebrook are a perfect illustration.
Good performance in the wider market has impacted rents, pushing them up by 24% in five years as well as increasing speculative development.
Some offices to residential conversion has made space more difficult to find, but in general the Report reveals that the office sector
Whilst business parks have seen a small fall in rents, this has attracted SMEs and incomers new to the country into any vacant space even though average prime rents are 5.4% ahead of the market peak in 2010.
According to the Report, high quality skilled labour has been instrumental in attracting new businesses into the county with the residential construction market playing a major role.
In 2017/18 the number of new homes completed across Kent rose by 7.3% on 2016/17 figures and there was a sharp upturn in the number of units with planning consent or in the planning pipeline.
With housing stock increasing, the supply and demand chain has been restrained with overall prices rising by 3% and more affordable areas such as Thanet (7.4%), Dover (5.2%), Canterbury (4.7%) and Swale (4.7%) seeing the highest uplifts. Only Gravesham saw a fall in prices, down by 0.4%.
Chairman of Caxtons, Ron Roser, said: "What really comes through in this year's report is just how commercial property activity is being driven by the needs of micro and small businesses rather than large corporations. It's also good to see more space being occupied by companies moving into the area.
"In many areas of the county, the increasing involvement of local authorities in both commercial and residential property development is helping to make a real difference, especially where there is less appetite from the private sector.
"With developers, planners and local authorities working together, much is being achieved. This can be seen out on the ground where infrastructure, housing, regeneration and commercial developments are all coming forward."
KCC Cabinet Member for Economic Development Mark Dance said:"Whilst the economy has been relatively resilient over the last 12 months – despite Brexit and potential trade wars – the report shows us there are wide variations in the performance of individual sectors of the economy.
"Kent remains and is increasingly, a business location of choice with strong letting figures in the town centre office market.
"I'm in no doubt that times are getting tougher, however, particularly in the retail sector, but town centres are changing and Kent has seen a fall in vacancy rates contrary to the national trend.
"I believe Kent remains resilient with a business environment seen as favourable to investment with major initiatives and projects to support growth and economic development in our county in the coming year."
Gavin Cleary, CEO Locate In Kent, said: "The 2018 Kent Property Market Report mirrors what we are seeing on the ground with businesses and people attracted to Kent because of its affordability, connectivity and quality of life.
"From the booming food and drink industry to globally focused manufacturing and a growing creative and digital sector, Kent and Medway is quickly becoming the go-to location for business success.
"With the regeneration and investment in towns and communities across the county from Ashford to Canterbury, Medway to Folkestone, we have all the ingredients in place for a future-facing and thriving, vibrant economy."
The Kent Property Market Report is supported by RICS.
For more information and to download a copy of the 2018 Kent Property Market Report, visit Kent Property Market Report 2018
Six months after the launch of the latest Kent Property Market Report, Mark Coxon, head of commercial agency and one of the authors of the 2017 report, shares an update.
The last 18 – 24 months has seen the greatest increase in both land values, industrial rents and investment yields, which are now higher or have hardened when compared with pre-recession 2008.
The amount of money being invested into the sector by UK pension funds and overseas investors is at an hiatus where yields on multi-let industrial estates are now reaching 4%, the lowest they have been. Similarly, single let sheds are seeing yields in the order of 5%, the disparity due to the risk in taking on one single asset.
What is true throughout the South East and not only in Kent, is the lack of investment stock. Primarily, investors have nowhere to put their money if they do sell. Coupled with a lack of development over the last 10 years this had led to little availability.
Industrial land values
Although there is a lack of land to actually build in Kent, land values have similarly risen to a level not seen before. In Dartford, for example, land values are now at £1.5m per acre; and moving further east Rochester is now off £650,000 per acre. Sittingbourne has lagged behind but is trading at £450,000 per acre, which is a 10% increase over the last 6-months but is seen as good value. Closer to the M25, Sevenoaks is at £1.5m per acre. East Kent has seen little increase due to relative lack of occupational demand.
The county's existing stock has eroded with the increase in pre-let activity. We have seen the London Medway Park in Rochester letting over 600,000 sq. ft. over the last two years. Speculative construction is currently evident in Belvedere with over 200,000 sq. ft. within 3 buildings having recently been built.
The self-storage and trade counter market has also come back - the former finally putting behind them their recession driven reluctance to move beyond the M25.
Where the buoyant residential sector is crossing over and affecting the industrial market is on deals from house builders acquiring sheds and land to store product for their modular home concepts. Berkeley Homes have purchased 10 acres in Northfleet to construct a modular build facility, and other similar developments are planned elsewhere in the county.
Kings Hill and Crossways Business Park are seeing some demand for the larger floor plates, but the majority of activity countywide is below 5,000 sq. ft. Gillingham Business Park has, for the first time in its history, been near to 100% let.
Sevenoaks and Bromley are leading rental levels at £30 per sq. ft. Other centres such as Chatham Maritime are yet to see any significant lettings this year. The east of the county, in particular Ashford, has had a few successes with Ashford pre-letting an entire floor of the Quinn development-Connect 38 - the first new town based office development in Kent for approximately 20 years. Discovery Park's new owners are in the process of applying for planning permission to extend the park. Some local towns are still struggling with substandard stock, although due to Permitted Development rights, much of this has been lost to residential.
There is little to report on the investment market due to lack of stock. What has been on the market has needed a robust occupational story to catch the investor's eye, but sadly Kent office investment does not always attract the major funds. The former Chambros House is under offer to the NHS with secure income off 7.5%; two offices at Eureka Business Park - 200 and 210 - are available at 8.6%; this follows the sale of Units 110 and 120 Trinity House to the London Borough of Bromley in April last year at 6.16%.
The picture wouldn't be quite complete without a brief comment on retail. The high street always loses to out of town retail centres, but actually continues steadily, though fortunes are very much town specific. The latter are all performing well with very few voids. Most noticeable lettings include the St James Retail and Leisure Development in Dover where the Food Warehouse, part of the Iceland Group, have acquired.
With a host of Company Voluntary Arrangements (CVAs)and administrations, most towns will be affected by an increase in stock, although these retailers have always picked good locations within the high street so re-letting may not be so much of a problem. There are few investment transactions, but high street retail is still reaching around 4% for good covenants and long leases.
Other sectors such as out of town retail, hotel, and the food and non-food sectors are all desperate for well-located sites. Similarly local authorities are actively looking for sites to accommodate their D1 school requirements. Sites for motor dealerships are also hard to come by, although Jardine's has just acquired 3.5 acres, which fronts the A26 at Tonbridge, for a new facility.
The funds and private equity companies continue to pile into emerging sectors including accommodation for students, where Deutsche Finance Ltd has purchased Canterbury Student Manor. The Care home sector has had similar success with Legal & General acquiring in Leeds Village at Ledham Farm.
Caxtons is hoping for another 12–18 months of a good and stable market before one or two drawbridges have to be pulled up, following the UK's exit from Europe, but who can actually predict what the Brexit effect will be?