Savills has predicted that Grade A office rents in Cardiff city centre will reach £25 per sq ft (£269 per sq m) in 2016 for the first time – a circa 15% increase from 2015 levels. The international real estate advisor notes there has been limited rental growth in Cardiff over the past seven years with prime rents only increasing by approximately 5%.
Gary Carver, director of business space at Savills Cardiff, comments: “The anticipated increase in 2016 is a result of competition for the new Grade A offices being completed in the city centre, something we have been woefully short of for some time. This rise is long overdue as Cardiff still lags behind most major cities in the UK, with Bristol now at £28.50 per sq ft and expected to top £30 per sq ft in 2016. Cardiff could feasibly reach £26 per sq ft within the next 18 months.”
Savills reports that total take-up at the end of Q3 stood at 299,902 sq ft (27,860 sq m) and Q4 has seen significant pre-lets complete including the 150,000 sq ft letting at Central Square to the BBC, taking the expected total for the year to circa 600,000 sq ft (55,740 sq m) an increase of over 10% on 2014 and 20% up on the 10 year average.
Gary continues: “The interesting story in 2016 will be that all new Grade A space in Cardiff, including One Central Square and 2 Capital Quarter buildings, could be fully let by early 2016, and we may therefore have no immediately available new office space for around 18 months. There are, however, a number of major office refurbishments taking place, and these are well placed to pick up enquiries from companies seeking to occupy high quality offices in the city during 2016. We could potentially see rents as high as £22 per sq ft achieved in these buildings.”
The firm notes refurbished office space expected to come to market in 2016 includes 50,934 sq ft (4,7312 sq m) at St Patricks House close to Cardiff Central Station, 35,000 sq ft (3,251 sq m) at 2 Kingsway and 16,953 sq ft (1,575 sq m) at Haywood House North on Dumfries Place, within Cardiff’s professional office quarter.
Cardiff’s office investment market has had a strong year, Savills highlights, with over £300 million expected to be transacted by year end. The firms believes this appetite will continue, driven by the anticipated rental growth over the next 12 months and further improvements in occupational demand for both the prime and secondary office markets.
Ross Griffin, director of investment at Savills Cardiff, adds: “Cardiff continues to be an attractive option for investors. Although the institutional investors are still active in the city we have started to see a number of new opportunity funds and overseas money increasingly looking to invest in the City and we expect this to continue.
“Over the next few years active asset management will be key to maintaining rental growth and creating further capital growth. We also hope to see further new development within Cardiff to help attract new occupiers to the city.”
Key deals in 2015 include the forward funding of Rightacres development of the new BBC headquarters at Central Square by L&G and the acquisition of One David Street let to Admiral by Amundi Immobilier, as part of Union Investment Real Estates Aqua Portfolio sale, which both achieved a yield of circa 4.75%. Furthermore Savills notes that average prime yields have sharpened slightly to 6% from 6.5%.