Wales’s largest office leasing deal was secured by the public sector this week, as central government continued to galvanise take-up in key regional locations.
The Government Property Unit confirmed on 8 August that it had signed a 25-year lease for 265,976 sq ft of offices at Rightacres and Legal & General’s Central Square, for occupation largely by HMRC.
The fifth transaction to be announced by the government in its much-vaunted regional hubs plan, the deal has broken Wales’s record for prelets in terms of size, and instantly thrusts Cardiff into a better second half of 2017 in terms of take-up.
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Although it represents a consolidation of Welsh government offices into one headquarters, rather than an expansion, the deal has been lauded locally. Rhydian Morris, director of Cardiff office agency at JLL, which advises the GPU, said: “This deal is a significant milestone not only for our capital but for the wider economy.”
With 28% of the Welsh population working for the public sector, almost double the UK average, the deal serves to underline the importance of government involvement in regional markets.
The GPU’s forthcoming 380,000 sq ft deal at Wellington Place in Leeds eclipses the city’s office take-up for the first half of the year. Similar trends are happening in Liverpool, Glasgow, Birmingham, Belfast and Bristol (see table).
The public sector was responsible for 20% of leases during 2016 in the Big Six regional cities, up from 12% in 2015, according to JLL. In the first half of 2017, it has been responsible for 21%.
Yet factors are still hampering some relocations. In Manchester, for example, plans for a “Whitehall of the North” were resurrected last year with the prospect of a new 900,000 sq ft government hub. But the GPU’s search was scaled back to 400,000 sq ft due to difficulties exiting leases elsewhere in the local vicinity, and getting departments to work in collaboration.
Now, it is understood the GPU’s lease requirement has been reduced to 180,000 sq ft in Manchester, as the shortlisting process drags on.
Take-up figures for H1 2017, versus the government’s current hub requirements, are particularly stark in the regions, but the London market has not been immune to the seduction of government occupancy.
The largest central London leasing deal of last year was a government assignment from Barclays at 10 South Colonnade, E14, for the next 15 years, after plans for a much bigger East London hub in Stratford, E15, were shelved.
A government spokesman said that the Canary Wharf deal was not one of the 13 HMRC-led hubs and a plan to move civil servants to Stratford was still on the cards, but the 1.5m sq ft move was likely to be lower down the list of priorities than the regional deals.
Tom Roberts, head of strategic investment and regeneration at L&G, said: “If you look at annual take-up, it’s been pretty high and I think the market has been more on the private side, but clearly a massive driver has been government.”
Liz Peace, shadow chair of the Government Property Agency, said that the primary objective of the hubs – designed to replace 127 HMRC offices alongside various other central government functions – was not regeneration or economic growth, but cost-effective management.
The GPU claims it is using a strong government covenant to drive down rents – in Cardiff it is thought to be paying £16 per sq ft, compared with a headline rent of more than £20 per sq ft.
Simultaneously, investors such as L&G, which has either finalised deals on or is in talks to own three further GPU hubs in Bristol, Birmingham and Liverpool, have been attracted to the 25-year, supposedly bullet-proof and index-linked leases on offer.
“It’s such a good match for our annuity fund requirements and we will look at as many as we can,” Roberts said.
But there are arguable negatives: the government was criticised earlier this year by the Public Accounts Committee for signing long-term lease agreements with no breaks.
Seven years on from the Smith Review that originally called for such hubs, genuine relocations have started to happen, and two weeks ago the first HMRC began moving into their new 184,000 sq ft Croydon hub at Stanhope and Schroders’ Ruskin Square.
