On the face of it, the South Wales industrial property market is in freefall. In the past nine months, more than 1.5m sq ft of shed space has been vacated as manufacturing continues to decant to eastern Europe and Asia (see p119). The likes of electronics manufacturer Panasonic, printer St Ives, furniture manufacturer Christie Tyler, Sony and New Venture Carpets have all abandoned much of their space in the province.
A saving grace, however, is that many of the buildings they have left behind are of reasonable age and quality, and ripe for sub-division and modest improvement. John Jones, head of industrial agency at DTZ Cardiff, agrees this glut of space is not all bad news, saying refurbs will add impetus to what has for some years been an active part of the regional property market.
“In South Wales, we have severalexperienced and well-funded propertyspeculators who have concentrated on the secondhand big sheds market, and most have done so very successfully,” says Jones.
Key players have included Formaction, which has recently recruited respected industrial agent James Perry from Lambert Smith Hampton’s Cardiff office, Curzon Properties, PMG Developments, Dovey Estates, RH Properties and Garrison Barclay Estates, headed by Andrew McCarthy, son of office developer Mike McCarthy. Jones points out that, depending on the age and size of buildings, these speculators will typically look to buy freehold at values of between £10 per sq ft and £30 per sq ft. Then, following a small outlay on sub-division and facelifts, will look to let out the space at between £2 per sq ft and £4.50 per sq ft.
“Little wonder then that there is not much new industrial development under way in the region, with construction costs rising to £50 per sq ft, and top rental levels still struggling to get past £5.75 per sq ft,” says Jones.
While the lettings market for these buildings is providing decent enough returns, the real money continues to be made where sheds can be shifted on with valuable retail or residential consents. “Local authorities will usually be concerned about the loss of employment opportunity, but older industrial buildings can often be overtaken by time, and there will be instances where their use no longer conforms with neighbouring activities,” says Jones.
Examples this year have included sales to PMG and Curzon Properties in Llanishen and Pentwyn, Cardiff, while the Panasonic site found a ready buyer in the shape of a group of national housebuilders. One of the few new-builds put up in South Wales has been the Welsh Development Agency’s 55,000 sq ft unit on the Rising Sun Industrial Estate, near Tredegar, where agent Stephen Myers of Knight Frank says there is strong interest.
Myers, who is also agent on the New Venture Carpets’ building at Reevesland Industrial Estate, Newport, and the 207,000 sq ft Alcoa building in Swansea, shares Jones’s opinions about the market. “While surrounding towns have sheds ripe for redevelopment, there remains demand for new property in Cardiff and south-east Wales in particular, which is one of the reasons why MAV Developments and Alfred McAlpine Capital are planning 750,000 sq ft of B1, B2 and B8 space on a site close to the second Severn crossing.”
The pair will redevelop the 48-acre Quay Point at Magor, just over the Welsh border, at junction 23A of the M4, as predominantly sheds and small office buildings, with several serviced plots for owner-occupiers. Knight Frank and Hartnell Taylor Cook are agents.
Other new-build schemes include Cardiff developer JR Smart’s 1m sq ft Capital Point, where around 150,000 sq ft has already been let or sold, and where it is building a further 450,000 sq ft distribution building for Aldi. The developer has a head start on Helios Slough, which is planning 450,000 sq ft ofindustrial space on a neighbouring site acquired from the Welsh Development Agency.
John James, director of Fletcher Morgan, and joint agent on Capital Point with King Sturge, says the second 125,000 sq ft of the JR Smart scheme is now well under way following the completion of the first phase of the same size. “If occupiers want new, quality stock, then there is barely anything available, particularly in Cardiff, where demand is always highest. Capital Point is also to the east of the city, which has great road access, hence the decision by Aldi to take a huge area of space,” he says.
King Sturge’s industrial floorspace survey in June indicates that the total amount of available industrial floorspace in the whole of Wales was 11.66m sq ft, a decrease of 0.7% compared with December 2004. But given the amount of recently vacated space, this figure will soar when the firm makes its December 2005 figures available.
The availability of new floorspace stood at 829,000 sq ft in June, which represents a decrease of 9.4% since December 2004. However, this still represents a major increase since the low point in August 2001, when just 300,000 sq ft was available.
The overall figure conceals regional disparities, with the majority of new floorspace in the south-east and north-east of the province. This trend has seen larger B8 units built in Deeside, and multi-unit terraces in Cardiff. JR Smart’s schemes in Cardiff, at Capital Business Park and South Point, are contributing a total of 500,000 sq ft.
Chris Sutton, head of industrial agency at King Sturge, Cardiff, believes the industrial market presents a mixed picture. “We have seen a strong performance among the small- and medium-sized sector, in the niche area of the trade counter sector, and also, to a lesser extent, in the distribution market, which has switched its focus into central South Wales from its traditional patch of Chepstow and Magor.”
He adds: “Local and regional companies have pushed up capital values, particularly at the smaller end of the market, with a continued desire to own freehold property. The trade counter sector has an increased propensity to take leasehold situations, with multi-branch operations, such as Jewson and Graham Builders Merchants, prepared to capitalise on their covenant strength.”
Sutton also stresses that, while the rate of closures in the manufacturing sector is a concern, there still remains a critical mass of more than 100 large manufacturingoperations in the region.
