Cardiff vs. London – our Capital advantage

Cardiff Bay

Last year marked another record year for investment into the UK commercial property market, with £26.1bn invested in UK offices during 2015, the highest annual total in eight years.

But in Central London volume failed to match the high of 2014, falling 4% short of the previous year, and national commercial property consultancy Lambert Smith Hampton’s (LSH) research suggests that pricing is approaching a peak. Following a period of exceptional growth, prime headline rents in the majority of sub‑markets are expected to be flat during 2016.

The 2017 business rates revaluation will put further pressure on occupier costs, potentially impacting on the rental levels landlords are expecting.

So, is London now at risk of becoming a victim of its own success? And could Wales’ own capital be set to benefit? It is worth taking a more in-depth look and assess how Cardiff scores when compared to London.

Occupier Costs

Office space within Central London’s core markets has always commanded a significant cost premium over elsewhere in the UK. However, more recently, this premium has become substantial on the back of strong rental growth throughout the capital.

Looking at the figures, the current cost of occupying a new-build office development in London’s Midtown – including net effective rent, business rates and all day-to-day running costs – is approximately £120 per sq ft per annum. That is double what it costs in Cardiff.

Staff costs

As significant as occupier costs are to a business, they pale in comparison with staff costs. As a general rule, staff costs in a brand new building usually account for around three quarters of a business’ expenditure.

Our analysis reveals that current staff costs (based on average local salaries in the upper quartile of earners), together with prevailing occupier costs for a new-build office, amount to an overall annual cost of just over £50,000 per workstation. Measured on the same basis, a workstation in London Midtown carries an annual cost of over £80,000.

Viewed in less abstract terms, the current overall cost of a new-build office of 50,000 sq ft stands at £27m (based on standard density of 100 sq ft per workstation) including staff costs. Over a period of five years, the effective ‘saving’ from being located in Cardiff instead of being located in London’s Midtown amounts to a sizeable £68m.

Housing costs

London-based office workers may command higher salaries than their regional counterparts, but for the majority, this is more than offset by the eye-watering cost of housing.

In today’s market, the average cost of a house in London’s inner boroughs stands at almost ten times the average combined salary of a cohabiting couple, compared to three times the average in Cardiff.

Recent research by Lambert Smith Hampton’s sister company, Hampton’s International, found that an average couple needs to save for eight years to afford a deposit in London, at least three times as long as it takes in the UK’s other regions.

And housing matters. According to a recent UK survey by Yorkshire Building Society, people aged between 18 and 40 rank ‘getting on the property ladder’ as more important in life than marriage, children or advancing in their career.

So where does Cardiff stand?

Cardiff stands at the heart of a city-region of 1.4m, just under half of Wales’ total population. It is one of the UK’s fastest growing cities and now is the time to invest so that commercial business will continue to be attracted to the principality’s capital.