Leading global property consultancy Knight Frank believes Cardiff should assume the role of being the driving force behind delivering a strong and vibrant Welsh Economy.
In its research report into the Cardiff Offices market for 2014 it says that, while Cardiff has always attracted strong investment interest given its status as one of the major regional centres and a capital city in Europe, the rationale for investing in the city is particularly compelling at present.
Matt Phillips, managing partner of Knight Frank’s Cardiff office, said: “The last twelve months has seen a continuation of improved market conditions which has led to a notable improvement in both the investment and occupational sectors. We have seen significant investment acquisitions, including new entrants from China, Kuwait and the USA, and have also seen investors willing to increase their risk profile by acquiring good secondary investments.
“Cardiff is increasingly competing on a world stage, and a competitive, world-class city is essential to winning inward investment. Now, the absolute key for Cardiff is to increase the occupier pool and ensure that the infrastructure, people, and available buildings are all in place to successfully compete for the much sought after national footloose inward occupiers.”
The Knight Frank research report reveals that third quarter office leasing take-up was an impressive 140,613 sq ft, bringing the 2014 year to date total to 395,719 sq ft. Full year take-up looks on course to exceed the 10 year average figure of 465,000 sq ft.
The most significant leasing activity had been in the city centre, where British Gas secured expansion space at 3 Callaghan Square adjacent to their Cardiff Headquarters and HSBC completed a sub-lease from Eversheds in 2 Callaghan Square. At Capital Quarter, Finance Wales and US IT occupier Alert Logic snapped up the first space in Number 1.
The supply of prime grade A stock remained limited, with only 32,000 sq ft available in the city centre and 40,000 sq ft in Cardiff Bay. However, Matt Phillips welcomed the re-emergence of the development market.
“There are two major speculative office schemes under construction at JR Smart’s Capital Quarter and Rightacres’ Central Square scheme, which between them will deliver over 220,000 sq ft of grade A office space. JR Smart and Rightacres both have enviable track records of being willing to commit to speculative development and getting their timing right and it is encouraging to see their confidence in the Cardiff office market,” he said.
“Meanwhile, office headline rents remain at £22 per sq ft in Cardiff Bay and £21 per sq ft in the city centre. But net effective rents continue to improve for prime space due to the shortage of grade A stock and we expect headline figures to move to £23 per sq ft during the next 12 months.”
Matt Phillips said that the role of the public sector in the Cardiff property market was also noteworthy and believed the public sector bodies should be applauded for their willingness to become involved in helping make Cardiff a more attractive proposition. “However, we need the Welsh Government and Cardiff Council to ensure that they are working on an agreed and joined up master plan for the whole City including its waterfront, and the absolute key will be delivery of new occupiers.”
On the office investment front, he said that Knight Frank had witnessed a significant improvement in sentiment and appetite for commercial property in Cardiff in the last 12 months. The regional markets were deemed to offer good value compared to the heated Central London and South East markets, and consequently any opportunities that were priced correctly had generated significant interest and fierce bidding.
“Cardiff and the region is particularly benefitting from the increased appetite for good secondary investments,” he said. “Until recently, investor appetite focussed on long-let, good quality office stock in established locations. However, with a lack of available prime stock and the hardening of prime yields, investment demand for established, good quality secondary and shorter income prime stock has increased in the last 6-12 months.
“We are also witnessing a more diverse profile of buyers, with an increasing number of overseas investors joining the traditional UK Institutions in targeting the major regional markets. Going forward we expect these buoyant market conditions to continue into 2015 although we do expect a temporary reduction in activity in the lead up to the UK general election, which is scheduled for May 2015.
“As the occupational market improves and headline and net effective rents rise, this will also have a very positive impact on the investment market and enable yields to harden further.”
The Knight Frank research report also spells out five catalysts for ensuring future growth for Cardiff.
Matt Phillips said: “Within the business community there is now a desire to see Cardiff expand as a driving force and ‘store front’ for the Welsh economy. The key elements are in place – growing creative, financial and life sciences industries; a strong academic community and well-educated workforce; and capital city status. The question is how does Cardiff move to the next level, and raise awareness on an international stage of international stage of the benefits the city offers?”
Knight Frank’s five key elements for energising Cardiff in the next decade are:
1. Connecting: By 2017 the mainline rail link to London Paddington will be electrified, cutting journey times by 15 minutes. Direct flights to Birmingham and Manchester airports have encouraged more Middle Eastern investors to look closer at those cities. Similarly, Cardiff Airport needs more scheduled flights to global business destinations in order to attract overseas investment.
The Metro programme linking the city region, via rail, bus, and cycling schemes, will improve commuting, and boost the ‘weekend economy’ of retail and leisure.
2. Accommodating: Cardiff’s development plan calls for 41,000 homes to be developed by 2026, and we see a growing private rented housing sector as being part of the solution. The universities are accounting for a larger share of the city’s economy and population, necessitating more student housing. New shops and leisure property will also be required to match this growth.
3. Recycling: Not all firms can afford prime offices, and rents in Cardiff are among the most competitive of the leading UK cities. This is an advantage that should be maintained, making it essential to refurbish a proportion of existing stock as affordable offices. Similarly, some older office buildings in secondary locations can in the future pass to other uses such as housing or student accommodation.
4. Building: The Enterprise Zone is forecast to attract up to 10,000 new jobs over the next decade, which would require a wave of new office development across the city. Schemes to watch include Callaghan Square (90,000 sq ft in phase one), Capital Quarter (85,000 sq ft in building two), Central Square (135,000 sq ft), and Cardiff Waterside (three sites totalling 625,000 sq ft).
Together they will help to drive both job opportunities as well as the headline rent from its current base.
5. Promoting: The profile of Europe’s youngest Capital continues to grow with the City being marketed abroad, with representation at the MIPIM property expos in Cannes and London, and Real-Expo in Munich, to raise awareness of its status as a capital city.
There are also upcoming Welsh government trade missions to Dubai, Germany, Korea, and India which will help to enhance the profile of Cardiff as a dynamic capital city. Following the Scottish referendum, more power could be devolved to Wales and Cardiff. To ensure the objective is secured there needs to be a coordinated voice for promoting the City.
