Industrial land demand in Wales is high and supply is scarce. So why is the government ploughing so much political effort into peripheral locations, instead of concentrating on the more economically significant M4 corridor? David Thame reports
The 72-acre site at Rhyd-y-Blew is looking good. Serviced thanks to a £1.6m grant, and located in the Ebbw Vale enterprise zone, it is at the top of the A465 Heads of the Valleys road – a motorway in all but name. It is one of the biggest industrial sites in Wales and is attracting interest in plots from five acres to the whole site – although no deal yet.
Everyone likes Rhyd-y-Blew. But some question the political effort going into peripheral locations with a low impact on the Cardiff city region economy, when some of it could be going into solving urgent problems of industrial land supply in the more economically significant M4 corridor.
The market blockage along the M4 is real enough: demand is strong, but supply of land and premises remains poor. Viability is part of the story. Rents hover around £5.50 per sq ft, against land prices around £250,000 an acre, making speculative development risky.
However, rents are rising and there is confidence that appraisals will soon show that speculative development is a winner. Two government grants, unveiled in April, may help. But there is still the problem of lack of land, and property sources point the finger of blame squarely at the Welsh government and local councils.
Neil Francis, partner at Knight Frank and the man selling the Rhyd-y-Blew site, says rents along the M4 have risen around 20-25% in the past year but it’s yet to prompt new development.
Tom Merrifield, director at GVA in Cardiff, adds that occupiers are willing to sign 10 year leases which is good for developers: “But whilst the maths is improving, the land supply isn’t.”
He guesses that town planners and politicians haven’t caught up with market.
“So long as demand was weak, as it was from 2008, then there was no pressure to release land. But now that’s changed.”
You see sites hanging around for years, empty sites that keep getting rolled into the next planning process, and that just rewards failure
Chris Sutton, head of JLL in Cardiff, has just completed a report for ministers on finding new employment land.
“We need a call to arms. The National Assembly passed a new Planning Act in 2015 which allows for a strategic development plan for the Cardiff city region. Two years later, there isn’t much progress but the plan is fundamental to bringing forward the large sites capable of meaningful warehouse development – and this is now urgent in South Wales.”
Sutton says progress has been slow because drawing up the plans is complicated, but there is still a sense of impatience.
The response of Welsh ministers is to blame local councils. A Welsh Government spokesperson told EG that local authorities have been able to come together to produce strategic development plans since October 2015.
“The Welsh Government believes that there is a need for a SDP for the Cardiff city region. So far there has been limited appetite at senior level in local authorities to start work on a SDP.”
Interim measures, suggests Sutton, could include restoring the short-term rates exemption for empty buildings to improve development viability and pruning the list of strategic sites.
“You see sites hanging around for years, empty sites that keep getting rolled into the next planning process, and that just rewards failure,” he says, suggesting such peripheral sites aren’t worth more money and effort.
There are silver linings. Rob Ladd, partner at Cushman & Wakefield, says the market is beginning to respond to rising rents and sustained demand. He is advising ABP, which has taken renewed interest in its long-owned 30-acre site close to Cardiff Bay and is looking at opportunities there.
“We’re looking at 500,000 sq ft of design and build – and perhaps some speculative development on the back of a prelet,” he says.
Yet Ladd worries that residential developers will still be able to afford higher land prices, and therefore buy potential industrial sites. “There is still a strong argument for some government support of the market,” he says.
Ministers are said to be listening and pondering: in the autumn we’ll find out what answers they’ve come up with.
The grants
The application window for Welsh property support grants – two pots of £7m – opened in the last week of March and closed on 30 April.
The £7m Property for Business Development Grant Fund and the £7m Property Infrastructure Fund are each expected to attract £13m of private sector investment and 550,000 sq ft of new or improved floorspace.
The 550,000 sq ft target is widely regarded as ambitious (“I don’t know where that number came from,” one applicant laughingly told EG). There is also concern that the scheme is over-subscribed and that funding announcements will be delayed or pushed back.
Most of the money is expected to go to Heads of the Valley’s manufacturing schemes and refurbishing existing premises. Nobody denies they are worthy beneficiaries, but some wonder if the government could do more for the M4 corridor.
JLL’s Chris Sutton says: “We do need more aggressive intervention to incentivise in areas where the private sector wants to develop.”
A decision by the Welsh Government on the outcome of applications for grant money is said to be imminent.
The numbers
1.2m sq ft
H1 2017 industrial transactions (over 50,000 sq ft)
200,000 sq ft
Increase in industrial take-up H1 2016 compared to H1 2017
500,000 sq ft
Increase in industrial take-up H1 2017 compared to H1 2015
