Thank goodness for the Smarts. Last year, in a move that only the Cardiff-based family developer would, or could, pull out of the hat, JR Smart announced it would speculatively build the 36,000 sq ft Driscoll Buildings on its Capital Quarter site.
Once that was up, the company said, it would start construction on a 78,000 sq ft headquarters building next door.
If it wasn’t for the Smarts, there might not be a single crane on Cardiff’s skyline.
Even for JR Smart, 2010 was a difficult time in the market, and it was building in an untested location – on Tyndall Road. Grade A in Cardiff city centre was thin on the ground, but so were tenants.
Just a few months after the formal launch of the site, Alex Smart sits looking relaxed and smiling. “I said we’d got interest and then, a couple of months later, we’ve signed someone,” he says. “It gives us confidence to keep going.”
In September, utility and network services company Inexus took 20,000 sq ft, the last chunk of space at Driscoll buildings. The next piece of the jigsaw at Capital Quarter is a 78,000 sq ft headquarters building, which is set to hit the market in 2013.
The Smarts are well known for their industry in the field, but will anyone else in Cardiff crack on and build?
Both MEPC at Callaghan Square and Aviva down at the Bay have a presence in the Welsh capital, but are they brave enough?
“I’d be surprised,” says Smart, “there’s not much grade A and, if you are going to invest, then now is a good time, but the problem with the nationals is that they have opportunities all around the country and can pick and choose their markets.
“With us it was either do something in Cardiff or don’t do anything at all.”
Other players, Smart adds, “might have the land but they haven’t got the heart for it”, and will, instead, chase the prelet market.
Agents agree. John James, director at Fletcher Morgan, says: “I can’t see MEPC building, but it might if it manages to get one of the prelets.”
Those prelets total 200,000 sq ft and have been much picked over. They include solicitor Hugh James, Legal & General and, more recently, law firm Morgan Cole. All of these firms are believed to need to do something by 2014.
Sources say Hugh James is currently shortlisting between Fusion Point 2, the St David’s House scheme at the central bus station, and Callaghan Square, although the company was thought to be under offer at Fusion Point 2 last year.
There are good reasons to be building now, according to Knight Frank partner Matt Phillips.
There is around 200,000 sq ft of grade A space in Cardiff, with 88,000 sq ft in the city centre.
“Space has been whittled down over the past couple of years and, with 500,000 sq ft of demand, there are good reasons why you should be speccing,” says Phillips.
He is talking to his clients, which include MEPC and Aviva, about taking the plunge on development, especially as it will take two years for any building to come out of the ground.
However, he warns that with very tight finance, “allied with a patchy occupier market and falling net effective rentals, it is not the climate for spec”.
Rent levels do little to counter this view. The Inexus deal reportedly signed at £16.50 per sq ft, while Admiral’s mega 220,000 sq ft prelet at the former David Street car park (see feature, p71) is thought to have scored a respectable rent, even if rather low for a prelet, of £16.75 per sq ft.
Exposed to anxiety
For comparison, the city commands a quoting rent of around £19 per sq ft.
“Unfortunately, in Cardiff, the rents we aspire to are marginal, even at the top end,” says Huw Thomas of Huw Thomas Commercial Property Consultancy.
“Why would you build at the moment and be exposed to all that anxiety, along with empty property rates?”
One hope on the horizon, albeit one made even more distant by Cardiff’s delays to its local development plan, is the council’s central business district project. This aims to deliver 4m sq ft of office space on land stretching over 140 acres from the bus station past Callaghan Square and into Cardiff Bay.
Some £60m of public money has been secured and it is hoped that this will bring in £100m of private sector cash.
Although talk of the scheme has been swamped by the recent announcement on Welsh enterprise zones (see feature, p74) – one of which will encompass the business district – the council and marketing body Cardiff and Co are working hard to keep the project on track.
But multi-ownership will be an issue. The council says it will consider CPO powers, “should that prove necessary”.
Even if the council can bring ownership under one roof, convincing companies to develop this space will be a far bigger task. Richard Thomas, managing director of Cardiff and Co, says the council is committed to a start “very soon”.
“There is a lot of preparatory work, but the council is very keen,” he adds. “Nobody is shying away from the fact it is a large project and the council is in discussions with a number of companies, both inward investors and developers. I hope that a year from now a project will be started and work will be under way.”
Thomas hints that progress might be made “quicker than you think”.
According to a spokesperson, the council is looking at a number of mechanisms, including capital spend, land assembly through purchase or land swaps, and acting as a facilitator to bring potential development partners together.
Outline proposals for phase one of the project will be presented to the Cardiff Executive later this year.
But who and what will be included in the new enterprise zone is still up for debate. The council is working with the Welsh government to establish this.
The zone could have far-reaching implications for developers. Many, including JR Smart, are keen to get their developments safely within the council’s thick red line.
John James of Fletcher Morgan warns that wherever that line is eventually drawn, it might put off everyone else outside that boundary: “Even JR Smart might think twice if it thinks that just down the road someone has got aid.”
And few want to think about what would happen if JR Smart downed tools in the Welsh capital.
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Swansea and Newport
Outside of Cardiff, activity is very thin. But in Newport all eyes are focused on Admiral, which has launched an 80,000 sq ft requirement for the city centre.
Commentators believe the insurer will settle for either Scarborough’s Cambrian Centre or Midas’ Central Point scheme, which are both situated near the railway station.
A decision is expected within the next couple of months, but an announcement will probably not be made until next year.
“Hopefully, it will give the city centre a shot in the arm,” says Huw Thomas of Huw Thomas Commercial Property Consultancy.
With Yell.com taking a break in its lease at Usk House, there appears to be little else to cheer the market.
In Swansea, agents say it is unlikely that anyone will build in the city centre.
Admiral is looking at opportunities outside the city centre after taking stop-gap space at Telelink2, and many agents think that city centre development will continue to stall while Hammerson’s plans to regenerate the town centre remain under review.
