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The UK economy has proved relatively resilient over the last 12 months despite the backdrop of uncertainty, not only as a result of Brexit, but also a mounting global trade war. Overall economic output is expected to show growth in the region of 1.4% for 2018 as a whole. However, the multiplicity of domestic and international events, combined with structural change in the retail sector in particular, is delivering wide variations in the performance of individual segments of the economy.

The manufacturing sector continues to be helped by the weaker pound although business confidence surveys suggest a subdued outlook, with business investment remaining weak. In contrast, the service sector showed a robust performance during the first half of 2018 and maintained momentum over the summer. The short to medium term outlook remains positive but will to an extent be dictated by the outcome of the Brexit negotiations.

The consumer sector, which is so important to the UK economy, remains challenged. Despite record levels of employment and some real income growth, households are navigating a difficult period. This is reflected in the Savings Ratio which has dipped well below the long run average. The small uplift in the base rate during 2018 will add to debt costs. It is therefore likely that consumer spending and the housing market will remain subdued for the next couple of years.

The UK property sector reflects the disparities in wider economic performance. The UK All Property Total Return for 2017 was 9.6%, more than double the previous year (MSCI). Despite the positive performance recorded in the office and, in particular, industrial sector, the All Property year end outcome was diluted by a weak retail sector.

This weakness is echoed in the Kent market, although there are also many positive stories across the county.


UK All Property annualised total return forecast 2018

Source: Investment Property Forum Survey of Independent Forecasts for UK Commercial Property, August 2018

UK total return IPF consensus forecasts

UK total return IPF consensus forecasts

Components of All Property IPF total return forecast for UK Commercial Property

Annualised average over period 2018-2022

Rental growth1.0%

Capital return0.0%

Rental growth4.8%

UK All Property annualised total return forecast 2018

UK All Property annualised total return forecast 2018

At the national level the UK office market has also performed relatively well over the last year. Kent has mirrored the national picture with buoyancy in the service sector and stock shortages in locations where large-scale conversions to residential use have occurred. Companies remain cost sensitive, which has contained rental growth, although this has helped the county compete in the wider south east market, particularly given the excellent accessibility to London of many towns. To continue to attract occupiers in high growth industries the limited development that has occurred in towns such as Ashford may need to be replicated elsewhere in the county.

Kent’s business park market has also reflected wider trends. Affordability pressures seen across the south east have translated into a limited backtracking in rents across a number of the county’s key parks and campuses. However, this flexibility has supported take-up across a range of business sectors, including a notable increase in SMEs and newcomers to the county. Ambitious plans, particularly relating to the expansion of Kent’s growing specialism in the biopharma and medical sectors, will further enhance the draw of these evolving clusters to a sector with undisputed growth potential.

A key factor in attracting both SMEs and large corporates in these high growth business sectors is the offer of high quality skilled labour. The residential market and wider environment play a crucial role in this strategy. Authorities and developers across Kent and Medway are addressing this issue head on with the 2016/17 financial year seeing the highest level of home completions since the financial crisis. With many of the county’s most significant developments now starting on site, housing provision will improve further, affording Kent a long term competitive advantage.

Looking ahead, expectations for the property market over the coming year are inevitably measured given the backdrop. At a national level the Investment Property Forum Survey of Independent Forecasts suggest total returns will average around 5% over the next five years, although clearly the out-turn of the Brexit process will play a role in the eventual outcome. Remaining focused on long term opportunities and in particular the needs of business, from operational space to quality urban areas and their surrounds, will be more important than ever.