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News Release


Always Looking on the Bright Side

Chris Sutton, head of Jones Lang LaSalle's Wales office gives his view on the commercial property market in Wales

Cardiff - 17th January 2012 - There have been plenty of New Year predictions from economists who have, probably correctly, set out a ‘more of the same’ scenario for 2012.  However, for the sake of preserving sanity in the year that marks the fifth anniversary since the collapse of Northern Rock, the start of the current downturn; it is worth reflecting on some of the more positive aspects of the commercial property market in Wales says Chris Sutton in Jones Lang LaSalle's Cardiff office.
"Certainly the office market in Cardiff had a good year in 2011 recording record take-up of circa 675,000 sq ft.  Whilst this includes the 200,000 ft² pre-let to Admiral in the City Centre, the remainder is still up there with the long term average take-up of 500,000 ft² pa.  This also represents a significant increase from the 425,000 ft² take-up in 2010.
Headline Grade A office rents remain stable at circa £20-21 per sq ft although, with in-going incentives remaining significant, analysis can have an element of ‘smoke and mirrors’ to it.
"However, what is now apparent is that there is a distinct shortage of Grade A office supply in the capital with a pinch point likely in about 12 months.  Local developer, JR Smart, has responded to this announcing the development of a 70,000 ft² second phase to Capital Quarter, south of the City Centre.  The company’s philosophy is to develop on a speculative basis and this paid off again last year with Inexus moving into the first phase, Driscoll Buildings which comprises 36,000 sq ft.
"With outstanding office requirements from Legal & General and Hugh James Solicitors, alongside the announcement of the Cardiff CBD Enterprise Zone, there are positive signs.  An overhang of secondary office accommodation will potentially lead to a reduction in values for secondary stock.  However, this will, in itself, create great opportunities for developers with refurbishment expertise and bring further alternative uses into our centres such as residential, budget hotels and leisure.
"In my view, the prospects for Cardiff’s Enterprise Zone are strong simply based upon ‘location, location, location’.  The Enterprise Zone is squeezed between Central Station, the emerging employment position of Callaghan Square, our landmark Millennium Stadium and the hugely successful St David’s retail extension.  This is just what will attract footloose inward investors.  If in doubt, then compare this marketing proposition with that of promoting windswept and desolate (albeit pioneering) office locations in the heart of Cardiff Bay during the last recession.
"In Swansea, office take-up in 2011 exceeded 150,000 sq ft.  Our firm’s sale of the 65,000 sq ft Land Registry building in the City Centre to Swansea’s Metropolitan University was the highlight although the focus in now mainly upon SA1 as the emerging employment zone.  Admiral Insurance remains the most significant outstanding enquiry for Wales’ second City, as indeed it is for Newport.
"In the industrial market our analysis suggests some 3.1 million sq ft of floorspace was taken-up in Wales in the first nine months of 2011.  What has also been encouraging has been that supply has levelled off at 18.8 million sq ft having increased markedly year on year from 2007 to 2010.  The rate of plant closures has slowed and this has been allied with increased take-up of short term overflow storage and warehousing, particularly in the 30-50,000 sq ft size range.
"There has generally been a strengthening in manufacturing demand and some companies that were considering their future in Wales now appear more settled. Renishaw International’s purchase of the 470,000 sq ft former Bosch alternator plant at Miskin was a highlight.  We also saw prime transactions at Imperial Park, Newport, where Blyweert Beaufort Limited leased 132,750 sq ft and Treforest Industrial Estate with Brecon Pharmaceuticals committing to 25,000 sq ft.   Too often, where second-hand sites become available, we see a downward spiral in the quality of the occupier; not so these transactions.

"Amazon in Swansea notwithstanding, South Wales has generally lost out to Avonmouth for the development of larger regional distribution centres, with a similar trend in North Wales where there is a preference for the M6 corridor.  However, there is growing demand for local delivery points, typically for parcel delivery connected to internet commerce.  This is evidenced by UPS acquiring the modern 44,875 sq ft former Maskrey’s delivery unit in Wentloog, Cardiff, last summer whilst DHL are also in the market.
"Market conditions in 2012 will enable an increase in activity from opportunity funds and cash rich investors.  Through the anticipated increase in loan book sales, resulting from bank deleveraging, I expect investors to be able to find value within the growing supply of assets from motivated sellers. 
"For example NAMA, Ireland’s “bad bank”, has outlined plans to sell 25% of its loan book by 2013.  With very few secondary investments achieving better than 10% yield, there remains good value for investors prepared to be pragmatic in what is still a tricky and risk adverse market.
"Finally, a nod to the policy makers.  In my own experience, policy makers at all levels in Wales have actively sought out the opinion of the private sector and business community in the past year, more so than at any time since devolution in 1999.  
"When the private and public sectors work together in a cohesive manner, much more can be achieved."