Barrier broken Offices are finally letting for £20 per sq ft and industrial is struggling, while the retail world awaits St David’s 2.
Offices
Rents in Cardiff’s office market will reach £20 per sq ft this month. As widely predicted, MEPC and Rightacres’ Callaghan Square is poised to sign two deals for a total of 20,000 sq ft in the 44,000 sq ft building three.
The deals, in terms of space, are modest for the Welsh capital, but the effect on local agents has been dramatic. Headline rents have been stuck at £18.50 per sq ft since 2002.
“Twenty pounds per sq ft has become a psychological barrier and I, together with three or four others, have been egging it on to happen for the past two or three years,” says Huw Thomas, partner at King Sturge.
Rhydian Morris at Knight Frank, agent on Callaghan Square, says the rest of building three will be under offer by practical completion this autumn. “Cardiff has fallen behind other cities,” he says. “We’ve had limited grade A stock available, and very limited demand for 20,000 sq ft plus.”
Demand so far this year has been good, say agents. For example, the Wales Audit Office has taken a 25,000 sq ft prelet at 24 Cathedral Road.
Last year’s take-up of 560,000 sq ft looks good against the long-term average of 480,000 sq ft. But figures are closer to the average if two deals are stripped out – the University of Glamorgan’s deal for 70,000 sq ft on Adam Street and Bovis Lend Lease’s for 22,000 sq ft in the city centre, a short-term deal related to construction of the St David’s 2 shopping centre.
Lack of supply has historically choked take-up. But space is coming through, helped by the completion of three buildings at Callaghan Square, adding 165,000 sq ft to supply figures. Morley is also set to start on No 3 Assembly Square at Cardiff Waterside, a 60,000 sq ft speculative building.
The main winner has been the secondary market, where rents are now achieving £14.50 per sq ft.
Newport is now snapping at the Welsh capital’s heels. A report by Experian ranked the city seventh in the UK for economic strength. This is below Cardiff at five, but above Outer London and Bristol at eighth and 10th, respectively. Swansea was 12th.
Newport’s office market is still living off the glory of deals signed to Yell in 2006, and the ONS and the Prison Service in 2005. But agents point to a backlog of demand from firms in poorer-quality 1970s stock that could soon be on the move, encouraged by a huge regeneration project to rebuild the centre. This should, they say, help boost rents from £14.50 per sq ft.
Meanwhile, activity has centred on Newport’s out-of-town market. At Celtic Springs Business Park, 35,000 sq ft of speculative space is being constructed. Agents hope to achieve £15.50 per sq ft after £15 per sq ft was achieved on a 35,000 sq ft prelet to Wales & West Utilities on the park.
Thomas says this would be a “sensible rental relationship with Cardiff”, returning Cardiff’s satellite market to its proper position.
In Swansea, Admiral Insurance’s relocation to 28,000 sq ft in Cyprium SA1 in 2006 remains the talk of the town. Since then, WISP has begun work on its 43,000 sq ft building, quoting £14.50 per sq ft. Morris admits this is “a jump” for Swansea, but adds: “It’s achievable. Swansea is not far behind Newport, and it still has tier 1 grant assistance.”
Retail
Anticipation of the £675m St David’s 2 retail scheme continues in Cardiff. Bob Croydon, head of King Sturge’s Wales office, talks of a lift in quality as the scheme nears completion in 2009. Until then, zone A rents are unlikely to move off the £275 per sq ft mark. The most recent opening on Cardiff’s high street was Peacocks in a lease reassignment in Q1.
“There has been a falling off in quality, and more quality and niche brands are waiting for St David’s 2,” says Croydon. “If I were acting for a retailer there, I would be driving a very hard bargain, so I don’t think it will start hurdling the current zone A by any great distance.”
Major retail redevelopments are also under way in Newport. The Kingsway shopping centre has exchanged contracts for 55,000 sq ft with its anchor tenant Wilkinson for part of a £20m city-centre project. Completion of the refurbishment is on target for Christmas this year.
In Swansea, the council has drawn up a shortlist of five developers to redevelop its city centre. Detailed proposals and financial bids for St David’s/Quadrant and Paxton Street/County Hall are being prepared. A preferred developer will be announced by the end of the year.
“They have a hell of a lot to do in Swansea to restore confidence, and any transformation will have to be fairly dramatic,” says Croydon. “There has been a loss of faith, which has driven people to out-of-town retail.” Zone A rents are half Cardiff’s at £125 per sq ft.
Industrial
Amazon is believed to be seeking a short-term lease before it moves to its 800,000 sq ft distribution centre near Swansea. It had hoped to be in the £100m Jersey Marine site at Neath Port Talbot before Christmas, but infrastructure work has led to delays.
It is believed to be considering the former Sony facility at Bridgend and the former MFI unit at Llantrisant.
Amazon’s movements will be closely watched. Simon Lloyd, director at Atisreal, says: “Other than Wilkinsons’ 850,000 sq ft unit in 1999, we haven’t seen a regional distribution centre in Wales. It’s not where our future lies, and I can’t imagine the ProLogises of the world building over our motorway junctions.”
One of the largest recent deals was to G24i, a manufacturer of portable solar cells. In a sale-and-leaseback deal, it signed for 198,000 sq ft at the Acer building in Cardiff. It is along this hi-tech route that Lloyd believes the South Wales market should be heading.
There is little else to cheer the South Wales industrial market. According to King Sturge, vacant industrial space in Wales has reached an all-time high of 14m sq ft.
“It’s a well-worn argument, but a lot of the properties included in this are older buildings,” says Lloyd.
He adds that, while many buildings are weatherproof so useable, they are not in the right locations to attract new occupiers. “We are finding that, priced competitively, we can do short-term leases to local companies,” he says.
Supply of good stock is short, but vacancy rates have put off developers. So have rents. Peacocks signed for 165,000 sq ft at Hypervalues’ former unit in Merthyr Tydfil at a rent of £3 per sq ft – a rent, says Lloyd, that is indicative for its size and location.
The Welsh industrial partnerships – a business venture between the Royal Bank of Scotland and the Welsh assembly – has developed 55,000 sq ft at Pontypool and sold it at £5 per sq ft.
“At those levels, it is barely economic to develop,” says Lloyd. “In Cardiff, it is OK, and maybe also for Newport, Bridgend and Swansea but, elsewhere, industrial development still needs financial assistance.”
| Cardiff: office agents’ league table | ||
| Office disposals, 1 July 2006-30 June 2007 | ||
| Agent | Total space (sq ft) | No of deals |
| Fletcher Morgan | 176,160 | 47 |
| King Sturge | 159,712 | 26 |
| Lambert Smith Hampton | 147,181 | 15 |
| Knight Frank | 137,453 | 38 |
| DTZ | 101,584 | 34 |
| Cooke & Arkwright | 90,479 | 27 |
| Emanuel Jones | 61,316 | 31 |
| Alder King | 31,848 | 7 |
| Michael Graham Young | 16,668 | 13 |
| Burnett Davies | 8,465 | 9Source: EGi Deals databaseThe table covers Cardiff – postcodes CF3, CF5, CF10, CF11, CF14, CF15, CF23, & CF24 for the period 1 July 2006-30 June 2007. Both sales and lettings are included (but not investment sales). The table refers to agents acting for the lessor/vendor, not the lessee/purchaser. Joint agency deals are related to both agents |
Market at a glance
OfficesCardiff – to June 2007
Availability increased to 915,000 sq ftTake-up for Q1 was around 130,000 sq ft, in line with last year’s level
Rents broke through to £20 per sq ft this year at Callaghan SquareOut-of-town rents £15.80 per sq ft
Newport rents £14.50 per sq ft
Floorspace increased by 33% to 318,000 sq ft in the 12 months from March 2006. 16% of enquiries were from inward investors in the yearto March. Nearly half came from start-ups and one-fifth from existing companies.
Swansea rents £13.50 per sq ft
RetailCardiff rents £275 per sq ft, forecast to increase 5.3% by end of 2007 to £300 per sq ft
Newport £135 per sq ft, forecast to rise 7.4% by end of 2007 to £145 per sq ft
Swansea rents £150 sq ft. No change expected
IndustrialTotal floorspace 14m sq ft at December 2006, up 14.8% year-on-year
Units more than 100,000 sq ft comprise 40% of available stock
New floorspace 775,000 sq ft
Rents little change on last year. Cardiff £6 per sq ft, with no rise predicted
Newport £4.25 per sq ft. Rise to £4.50 forecast by end of 2007
Swansea £4.25 per sq ft. Expected to stay static
