When Bruce Dickinson, singer with the rock band Iron Maiden, set down his new aviation business in 132,000 sq ft of St Athan hangers earlier this year, the news created a media buzz for the Welsh industrial market. But any excitement was short-lived, as the market slipped into a significant slowdown in the second half of 2012 that could last well into next year.
Agents are adamant that the market is still moving, and with hard work there are a few notable deals still being done. But while take-up for the third quarter was 263,000 sq ft, deals on grade A space have plummeted, with no deals over 50,000 sq ft recorded. DTZ, which compiles data from the market, reports that there has not been one deal on grade A space of more than 50,000 sq ft for the whole of 2012. The last deal was in the third quarter of 2011. In comparison, the take-up of grade A space in the rest of the UK rose by 7% in the third quarter, the first quarter-on-quarter rise for nearly 18 months.
JLL estimates that its deals of more than 50,000 sq ft for all qualities of space will have dropped from 22 in 2011 to no more than 10 by the end of this year. “It’s been a quiet year, with relatively little coming on the market and relatively little coming off,” says Chris Sutton, JLL’s lead director, Cardiff. Jeremy Symons, industrial director at Cooke & Arkwright, says there has been some activity but deals are very keen. “They really depend on individual circumstances. If you’re a land owner who needs to sell then prices are on their backside, it’s an unusual situation.”
There were two major deals in quarter three above 50,000 sq ft, but both were for secondhand space. Retailer Jojo Maman Bébé signed for 83,000 sq ft in Newport and Ferryman Haulage paid £1.4m for 180,000 sq ft at Newbridge Industrial Estate, Caerphilly.
While the Welsh market is undoubtedly being hampered by the UK’s dire economic climate, it is also suffering from a particular lack of churn. The number of companies expanding, moving or even closing has slowed, affecting enquiries, which are down by 40%, and on the availability of land and stock being released to the market. “The problem is the quality of stock,” says Rob Ladd, director of industrial agency DTZ. “Before, there were new-builds, spin-offs and major closures. The level of properties coming back to the market has diminished and the stock coming back is reasonably poor.”
Wales has the third-lowest amount of prime space available in the UK, at just 7% of its total stock, according to DTZ. Agents fear that with such low levels of quality space, new businesses and investors will not be tempted in, while existing ones will not stay. “Many of our businesses are in buildings that are 30 to 40 years old and are nearing the end of their life span. Retaining those will be a real issue,” says Sutton.
Cooke & Arkwright’s Symons says older secondary stock is either languishing on the market or going for rock-bottom prices. He says 4,000 sq ft sheds in Cardiff were attracting between £85 and £90 per sq ft and are now being taken for £28 sq ft, while there are even cases of rent-free deals just to get around empty property rates.
The lack of speculative development in Wales, which would have once bought prime stock to the market, is also adding to its woes and potentially storing up economic problems for the future. JLL reports that there were just three speculative developments in Wales in the first half of 2012, equating to 30,000 sq ft of new space. With such market uncertainty developers are reluctant to build speculatively, particularly with the danger of incurring empty property rates. Ladd warns that this lack of churn and new-builds means Wales does not have the “product” to attract big employers, despite a loyal and relatively cheap workforce. And the usual methods of unlocking activity, public-sector capital funding and investors are also thin on the ground, with the Welsh Assembly Government retreating because of funding cuts and corporate investors still waiting for the “right time” to start spending again.
But Sutton does point to a few glimmers on the horizon. He says the energy and waste renewals markets have seen a surge in activity with 25 separate enquires this year. JLL has completed five deals for peak power units with energy companies Welsh Power and Green Frog, and expects more demand from the waste-to-energy market. And while the Welsh Assembly Government may no longer have the capital investment it once did, its Enterprise Zones may help, already luring in Bruce Cardiff Aviation company. “In the industrial sector there’s no point in saying ‘here’s the site but there’s no planning, services and environmental issues’,” says Sutton. “We have to say, ‘here’s the site, it’s good to go’. That’s what we need and that’s what Enterprise Zones will have to do.”
But in the short term, agents are bracing themselves for more of the same next year. “In September, things did look more positive,” says Symons. “But that confidence has since evaporated. I’m coming to the conclusion that 2013 will be the same and that may even continue into 2014.”
