Avison Young has issued its quarterly report of the city centre office markets, Big Nine, that confirms it has been a relatively quiet year in the Cardiff office market, with take-up totalling 286,000 sq ft to Q3, still some way short of the ten-year annual average of 514,000 sq ft.
However, with new schemes coming out of the ground, Cardiff has a substantial amount of speculative development to look forward to that will provide space for those looking to relocate in twelve months’ time.
Tom Merrifield, director at Avison Young in Cardiff says, “The Big Nine report reinforces the city’s need for a healthy Grade A pipeline if it is to continue to attract major occupiers and compete against the larger UK cities such as Manchester. Currently, there is 379,000 sq ft under construction much of which is in line for pre-let.”
In Q3 there were just two deals above 10,000 sq ft; Staling Bank took 14,130 sq ft at Brunel House in the city centre and recruitment agency New Directions took 17,130 sq ft at Lambourne House on Cardiff Business Park. Elsewhere there were a number of deals at Callaghan Square which included occupiers Amey and Grant Thornton.
In terms of new schemes underway, JR Smart has broken ground on the latest Capital Quarter development in John Street, where 107,000 sq ft offices are expected to complete by Q1 2021. At the substantial regeneration of Rightacres’ former Brewery site Central Quay, preliminary works have started on the 220,000 sq ft Ledger Building.
At the end of Q3 the city centre take up stands at 59,238 sq ft, with a headline rent of £27.00.
It is a raft of small to medium size deals that have kept the Cardiff market afloat this year.
“The market is crying out for more space,” continues Tom Merrifield. “Thankfully over the summer there has been an increase in development pipeline activity, adding up to exciting prospects for 2020 and into 2021 for the Cardiff office market and those looking to relocate.”
The Big Nine report, which covers the nine major regional markets in the UK, shows that there is continued inward investment and relocation deals, boosting take-up nationally during the third quarter.
Total city centre and out-of-town activity during Q3 amounted to 2.1 million sq ft. This was just above the ten year quarterly average, as was take-up for the year to date figure of 6.3 million sq ft. Although this is significantly short of the record levels of the last two years it is at a similar level to the referendum year 2016, the last time the market was affected by political uncertainty.
The second half of the year tends to show stronger activity but Brexit has impacted on occupier decisions this quarter, particularly for small to medium sized deals. There has also been a wide divergence in performance between the regions this quarter, with the largest cities performing well against the ten-year averages.
Despite political uncertainty and occupier caution, headline rents continue to edge up across the UK regions, with Manchester leading the way at £36.50, followed by Bristol and Edinburgh.
However, the reality is all of these locations remain undervalued given overall limited rental growth over the last five years set against high building cost inflation. Over the last 12 months average prime rents have increased by around 3% in both the city centres and out-of-town locations.
Looking forward, long-term strategic demand remains robust as regional markets continue to benefit from substantial public and private sector inward investment, particularly from the government hub programme and the BT hub strategy.