Data released by leading property consultancy JLL shows that direct real estate investment in Wales hit a record-breaking £0.7bn in 2014, up 97 per cent on the previous year.
These figures, set out today (10 March) at the launch of JLL’s South Wales Report 2015, follow the news that direct real estate investment in the UK hit a record £65 billion in 2014 – a 16 per cent increase on 2013.
Justin Millett, director of capital markets in JLL’s Cardiff office, said: “There are a number of reasons why the UK and Wales have performed so well over the last 12 months. The UK as a whole is seen as the global centre for cross-border investment and has been fuelled by increased investor confidence in the accelerating economy, as well as fierce competition for assets and strong pricing in London.
“In Wales, the investment market is considered good value, with yield return on investments higher here than in other regions outside London.”
Whilst it is the office market that traditionally attracts the headlines in Wales, the strongest performing sector in capital markets was retail and leisure. Of the £0.7bn investment pot, the single largest contributing transaction was the £156 million sale of the Parc Troste out-of-town retail park in Llanelli to M&G in August 2014.
In contrast, the largest office investment traded in 2014 was the sale of Ty Hywel to a Kuwaiti family trust in March in a deal worth £40.5 million. The growth of alternative sectors such as student housing and leisure has been a significant trend. An example of this was the £12 million sale of a hotel and three leisure units at Imperial Gate on St Mary Street, Cardiff, to L&G in November 2014.
Millett continued: “Strong pricing in London allows investors to realise gains and look to the regions for good value investment opportunities. The regional market is at its strongest, with volumes up from 51 per cent in 2013 to 58 per cent in 2014, showing a real shift of emphasis away from London where volumes dropped by 3 per cent last year.
“Looking ahead, we expect 2015 to be another record year, though the rate of increase will slow markedly not least due to a lack of stock. More importantly, however, is the uncertainty surrounding the UK general election which will inevitably lead to a slowdown in volumes as investors digest the prospects and implications.”
According to Chris Sutton, lead director in JLL’s Cardiff office, the occupational markets have seen a rise in the number of transactions with a welcome return of inward investment in both in the office and industrial markets.
Office market activity is dominated by Central Cardiff Enterprise Zone, with significant schemes such as Capital Quarter and Central Square.
Testament to increased confidence in the Wales market, Deloitte announced plans to expand its operation and transfer some specialist functions from across the UK to the Capital’s enterprise zone, promising to create 500 new jobs over the next three years.
Sutton continued: “We should celebrate the fact that businesses like Deloitte and BBC Wales are choosing to expand in Wales which, in turn, is leading to much-needed new development, including increased speculative development of Grade A office space.”
In the industrial market there has been another marked increase in take-up particularly for large units of over 100,000 sq ft. The headline inward investment transactions last year included the opening of Pinewood Studios Wales at Wentloog and the expansion of Tenneco Walker Automotive in Methyr Tydfil.
Sutton says “However, there is also a welcome increase in ‘build-to-suit’ high-bay units for the logistics sector with Aldi in Wentloog, Bidvest 3663 and DPD Geopost together representing a potential 750,000 sq ft of new development in 2015.”
The current Welsh planning system is set to change in summer 2015 when the Planning (Wales) Bill is expected to secure Royal Assent.
Sutton explains that how Wales implements this Bill will determine whether the new planning system rises above that of England: “Planning is often quoted as a blocker to development and a drag on new investment. This bill should bring strategic direction to the plan-led system and secure improvements in development management.” Sutton concludes: “The Welsh economy has undoubtedly moved into a period of sustained recovery, and there is a more positive picture both in terms of employment and business investment.
“Going forward, the outlook for South Wales is positive and the record activity in the capital markets in 2014 illustrates there is continued investor confidence in the region.
“However, the immediate lack of available Grade A floorspace in both office and industrial markets is emerging as a key issue for Wales and is a clear opportunity for both developers and Welsh Government to consider.”