The Cardiff office market bounced back strongly in the second quarter of the year following a disappointing first three months, according to research released by property consultancy Knight Frank.
Its ROMP report shows Q2 take-up amounted to just over 141,000 sq ft, with take-up dominated by city centre activity, with the financial, banking and insurance sector accounting for over 65,000 sq ft or 46 per cent of the total.
Matt Phillips, head of Knight Frank’s Cardiff office, said: “The occupier market remains buoyant with demand generally in excess of supply. In particular, the new Central Square and Capital Quarter are attracting strong interest and the quality of these schemes may yet help to set new benchmark rental levels.
“Full-year take-up is expected to be fairly robust and will probably surpass the long term annual average of around 465,000 sq ft.”
During the period April to June, there were three significant leasing deals, all of which involved Knight Frank acting on behalf of the landlord.
· The AA relocated from St Patrick’s House to take 15,720 sq ft of newly refurbished space at Capital Tower, the capital’s tallest office building. The landlord Topland has started a major refurbishment of the building which includes the office floors, replacement of the lifts and extension of the main reception.
· Network Rail has completed on a lease of the 1st floor at Number 1 Capital Quarter from the Welsh Government. The lease is for ten years, with a five-year break and the rent achieved was £18.95 per sq ft.
· The largest deal of the quarter by some margin was Deloitte’s lease at Six Park Street where the company has taken 24,500 sq ft adjacent to Central Station as part of its expansion in the city.
According To Knight Frank, Grade A supply in the city centre remains limited to the remaining 21,296 sq ft at Number 1 Capital Quarter and 21,851 sq ft available in 2 Callaghan Square following Barclays’ break option in September 2015.
“Overall grade A availability stood at 108,907 sq ft at the end of Q2, marginally up on Q1 but still significantly down on the market’s low point in 2009/10. As a result, some occupiers who might potentially move have been forced to consider refurbishing their existing premises or look at pre-letting opportunities,” said Matt Phillips.
“Active named requirements remain robust and in fact rose marginally in Q2 to 328,000 sq ft, over three times current Grade A availability, with additional requirements potentially emerging in the near future. The amount of Grade A stock is increasing and construction is already underway at the 135,000 sq ft One Central Square and the 84,000 sq ft Number 2 Capital Quarter.
“Both are scheduled for completion in early 2016, while question marks remain on whether the Welsh Government’s scheme at Callaghan Square will be speculatively started.”
The Knight Frank report also revealed that, in common with the other major regional markets, Cardiff continues to attract strong demand from investors.
Cardiff and the region was particularly benefitting from the increased appetite for good secondary assets. Until recently, investor appetite had 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 had increased in the last 12 months. Prime yields stood at 5.75% in Q2.
Cardiff was 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. In the last 12 months buyers originating from China, USA and Kuwait, had joined the likes of Legal & General, Mayfair Capital and Fidelity in making acquisitions in the Cardiff city region.
Matt Phillips said: “While Cardiff has always generated strong 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.
“Investors are being increasingly attracted by the infrastructure improvements and the major developments and regeneration projects which are under way. The drive by the public sector to attract more occupiers and the attractive demand-supply dynamics will all have a positive impact on the Cardiff office market.
“This demand was particularly evident with the recent sale of Helmont House which attracted
fierce bidding from a diverse range of investors, including Pension Funds, Opportunity Funds and Overseas Funds.”