Cushman & Wakefield gives its predictions on what lies ahead for the Welsh property market this year:
Andrew Gibson, Partner in Investment at Cushman & Wakefield in Cardiff comments: 2017 has been an interesting year with a flourish of sales completing in Q3/Q4 such as Legal & General’s funding of the HMRC building at Central Square (£133.2m), Aerium’s acquisition of 1 Central Square (£51m) and Credit Suisse Asset Management’s funding of 2 Central Square (£56.5m). These three transactions at Central Square alone total some £240.7m, which is testament to the quality of the Central Square scheme and how attractive it has made Cardiff to investors. As a result of these and others still set to complete before year end, we can say with some confidence that 2017 investment volumes will exceed the 10 year running average of £524m. 2018 could see a relatively fast start, as the Welsh Governments intervention in abolishing Stamp Duty Land Tax (SDLT) and creating the more punitive Land Transaction Tax (LTT) structure will come into effect in April 2018. It is our view that this increase in tax of an additional 1% on commercial (non-residential) transactions over £1m, will have a significant negative effect on investor confidence in Wales, however it may see a number of transactions forced into completing before the end of March 2018.
Rob Ladd, Partner, Logistics & Industrial agency at Cushman & Wakefield in Cardiff comments: The industrial and logistics property sector in South Wales continues to show resilience, particularly in the context of the wider economic uncertainty relating to the ongoing Brexit negotiations. The underlying market fundamentals remain positive and 2017 has seen reasonable levels of activity from both occupiers and investors. The shift in retail activity from shop to warehouse is forcing many investors to re-evaluate the industrial and logistics sector and their assumptions around both rental and capital growth.
During 2017 occupier demand remained steady across the South Wales region. Recently completed transactions including the sale of Aviation House, Bridgend (123,000 sq ft) to Willis Asset Management and the acquisition of Phileas House in Llantrisant (257,000 sq ft) by FEI Foods have increased the take-up of industrial space (>50,000 sq ft) to more than the five year annual take-up average of 2.3 million sq ft.
With current availability of vacant stock (>50,000 sq ft) now below 7 million sq ft, equivalent to less than three years supply, and with no significant new build projects forecast, supply constraints are expected to continue and this will put pressure on prime rents and capital values.
The impact of technology and automation in the distribution of goods is driving change across occupier demand and asset types and against such a rapidly changing environment the risk of obsolescence of Wales’ industrial and logistics property is heightened.
Looking forward, a positive note for Wales was the confirmation in the autumn budget that the Severn Bridge tolls will cease in 2018. Currently the tolls represent a significant challenge for both occupiers and developers, with a notable disparity between land and property values in South East Wales and Avonmouth (which is currently a third higher despite only being a few miles apart geographically). We expect this gap in values to reduce, albeit until the issues surrounding the congestion on the M4 at Newport are addressed the effect is likely to be confined to the east of Newport only, where readily available development sites remain in short supply.