Investment into offices in Cardiff fell by £58m in Q1 2017, compared to Q1 2016, due to a lack of pressure to sell, according to Savills.
Transactions reached £21m, compared to £79m in Q1 2016.
But the firm expects levels to pick up in the second and third quarters. Transactions of note in Q1 included the sale of the Media Wales building behind Central Square, acquired by Mayfair Capital, the disposal of Fusion Point 1 on Dumballs Road and the sale of Trinity Court on Newport Road. Current prime yields in the city stand at 6.1%.
Ross Griffin, investment director at Savills Cardiff, said: “Investors are seeking a ‘flight to quality’ and those with well let, income-producing assets are unwilling to sell unless they secure a strong exit price. Rising construction costs are now driving parties to buy, rather than develop new stock, adding further downwards pressure on prime yields.”
Supply of office stock in Cardiff has fallen 5% since the end of 2016 to 1.2m sq ft. Occupational take up in Cardiff reached 146,739 sq ft in Q1 2017, 19% above the five year average of 123,000 sq ft and 56% above the 94,163 sq ft in Q1 2016.
This success can be attributed to a number of large lot size deals such as Cardiff University’s 45,000 sq ft letting of Two Central Square and Network Rail taking 31,500 sq ft in St Patrick’s House. In the last 12 months, 72% of take up in the city centre has come from deals over 10,000 sq ft, above the historic average of 52%.
Gary Carver, director in the business space team at Savills Cardiff, said: “Cardiff continues to perform strongly in terms of take up of office space. Driven by strong economic fundamentals, with growth expected to rise to 10.1% in the next five years, this has filtered into employment levels and an increase in firms looking for space in the city.”
Grade A supply now stands at 155,000 sq ft, enough for a year based on current demand in the city centre, driving an increase in refurbished stock.
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