Review of Property Markets in South Wales – mid 2005

During the first half of 2005, the office sector performed well overall with continued demand coming from owner-occupiers in the main.

New development at Cardiff Gate continued to prove popular, consolidating its position as Cardiff’s prime out of town office location with 120,000 sq.ft developed over the last 18 months. There is, at present, little to rival Cardiff Gate’s dominance although proposals in the pipeline for a new international business park through a private / public sector partnership could provide some healthy competition. It will be important to secure a longer term supply of land and high quality office development if Cardiff is to match the growth of other regional centres. There is an acute supply shortage of prime space in the city centre with only schemes like KMHD’s prestigious Park Plaza and Rightacre / MEPC’s joint venture at Callaghan Square on the horizon following the successful letting of Rightacres’ 18,000 sq.ft St Mary House to Arriva Trains at £18.00 per sq.ft.

There is a general consensus amongst agents that Cardiff could be losing out on attracting prime requirements through lack of availability. On the edge of the city environs, new schemes at Nantgarw and Upper Boat will no doubt continue to soak up demand for out of town requirements at discounted rents compared with Cardiff and in some cases having additional grant advantage.

In the city centre, prime rents stand at £18.50 per sq.ft confirmed by the letting of 36,000 sq.ft at Callaghan Square to ING.

There continues to be a focus on redevelopment of secondary office space although there is movement back towards refurbishment fuelled in part by shortage of quality space in the city centre and consequent increases in rent for secondary space, now up to £14.50 per sq.ft depending on quality of refurbishment.

The fortunes of the industrial sector have been mixed. The larger shed market is still being affected by the apparent restructuring in the economy away from heavy manufacturing and towards added value services. Cheaper manufacturing requirements, traditionally the bread and butter of the South Wales market are seen to be moving increasingly to the Far East or Eastern Europe. The change from industrial to alternative use redevelopment – especially residential – is a growing trend. Pressure on house builders to find sites has seen many of the nationals buying old industrial sites before getting planning and offering overage deals to landowners.

Demand for smaller, standard industrial units has been high with most of the traditional estates in South Wales enjoying high occupancy rates. In some cases, like Bridgend Industrial Estate occupancy is running at or close to 100% prompting the owners, Insight, to undertake new speculative development of 60,000 sq.ft. The high quality Omega development at Pontypool was completed over a year ago but has yet to attract its first occupier, although agents report strong interest and are thought to be close to making an announcement of the first deal. The quoting rent for these units is £4.75 per sq.ft.

Demand for investments across all sectors remains at exceptionally high levels. The auction rooms continue to drive up prices for the right product fuelled by low interest rates, the weight of money away from equities and savings into property. Prime yields are currently standing at around 5% for retail, 6.5% for offices and 7% for industrial.