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?
The Ministry of Housing, Communities and Local Government (DHCLG) has announced new measures for the lettings and property management sectors.
Caxtons Chartered Surveyors is a full service property company based in Kent providing property expertise across the South East - including residential lettings and management.
Alan Stewart, director and a Fellow of the Association of Residential Lettings Agents has heard it all before.
"Banning orders against rogue landlords and letting agents who commit offences came in to force as part of the 'Housing and Planning Act 2016' and local authorities will be able to share that information. However, there are so many rules and regulations designed to catch these offenders that just aren't being enforced.
"At Caxtons we hope that if and when the latest proposals become law they are rigorously policed and applied. As an accredited letting and managing agent we already have codes, laws and regulations that are being flouted by some 'fly-by-night' agents who set up with no qualifications or knowledge of the sector. We know that letting agents are already in breach of the existing code that requires us to display charges prominently in offices and online. But nothing is being done to challenge them or let potential tenants and landlords know."
The new proposals are, in general, welcomed by the sector and comprise a compulsory Code of Practice covering all letting and managing agents to ensure that:
Sadly, bringing the proposals on to the statute book will require Parliamentary time, which is in short supply particularly with Brexit looming. And the finer detail of the Code is yet to be finessed by working parties made up of user and regulatory groups.
Housing Minister Heather Wheeler said "Most property agents take a thorough and professional approach when carrying out their business, but sadly some do not.
"By introducing new standards for the sector, we will clamp down on the small minority of agents who abuse the system so we can better protect tenants and leaseholders who find themselves at the end of a raw deal."
It is hoped that the proposals, and the promise that penalties in the form of criminal charges, will be enforced where mal-practice is uncovered.
"This move will reinforce our message about using reputable agents and I believe the non-compliance figure for displaying fees was over 90% with little or no repercussions. The provisions are already contained in the Consumer Rights Act 2015 and it appears that these will be amended and strengthened in the Draft Tenant Fees Bill, which is now working its way through the Parliamentary process." says Alan.
Having completed their examination of the draft Tenant Fees Bill, members of the DHCLG Committee are supporting change to apply stricter regulation to tenancy deposits including smaller deposits, what fees will be permissible, and diligent enforcement of the regulations.
Recommendations include capping tenancy deposits at five weeks' rent, rather than six and returning holding deposits if tenant referencing fails the required criteria.
Industry experts are concerned that the latter will lead to additional problems for tenants and agents. If agents are unable to retain holding deposits and the potential tenant fails referencing checks it may lead to agent bias in selecting only the best tenants to avoid expense associated with failed referencing.
The HCLG Committee Report says the Bill will
...increase letting agents' incentives to compete for landlords' business resulting in a more transparent market with lower overall fee levels and a higher quality of service
and that a fee ban will
....reduce the risk of unfair practices in the form of double charging ... thus making the sector more competitive, more affordable and of a higher standard.
Where leaseholders are concerned, they will be able to challenge unfair fees and service charges and there will be support for leaseholders who want to sack management companies who charge a lot for doing very little.
When interviewed, Sebastian O'Kelly, a prominent campaigner for a fairer deal for leaseholders, recently said he would hope the new regulator is "Somebody who is completely outside the leasehold system, so none of that terracotta army of lawyers and surveyors who depend on the leasehold system and its inefficiencies for their livelihood. It needs a very robust independent regulator who will kick this murky corner of property into line."
At a time when it forecasts 418 rivals are losing money and 386 likely to fail, *The Plimsoll Analysis has recently identified Caxtons as one of the 100 fastest growing companies in the Estate Agents category.
In addition, it reveals 225 key rivals are ripe for takeover.
Graham Mitchel, Financial Director of Caxtons says "It is encouraging that we are rated strong and generally are performing well based upon both the key benchmarks and key trends that Plimsoll base their analysis upon."
*The Plimsoll Analysis examines markets and provides companies with information to compare themselves to others in their field, to review potential acquisition opportunities, to keep abreast of companies that threaten or are likely to fail and to identify competitors who outperform others.