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General
News and Deals
GVA Grimley has released its latest research – Regional City Centre Office Markets Outlook: Autumn 2007. The research shows that Cardiff has the lowest prime rent at £18.50 psf out of the nine regional centres examined by the property adviser.
“If Cardiff wants to encourage more leading national developers to invest in the city and provide top quality office space, then rents have to rise,” comments Stuart Ramsey, regional head of office agency and development at GVA Grimley in Cardiff.
2006 saw average rental growth of 1.7% in Cardiff – on a par with the UK national average – and GVA Grimley expects a similar rate of growth for the city in 2007. Other regional centres reported comparable levels – Birmingham reported growth of 1.4%, Leeds 2.1%, Liverpool 2.2%, Manchester 0.8% and Edinburgh just 0.4%, while Newcastle demonstrated the strongest growth of the nine, at 4.1%.
Stuart Ramsey expects the situation to change over the next few years. He says that 2007 is expected to mark the bottom of the cycle, with the rate of rental growth likely to increase to around 3.5% by 2009, as a combination of healthy demand, and a limited supply pipeline, puts upward pressure on rents.
“With virtually no city centre development activity over the last few years, we are seeing pent-up demand in the market,” he explains. “Going forward take-up will be boosted by the availability of high quality office space, and as such, the speculative schemes currently under way in the city should undoubtedly let well.
“A lack of choice of immediately available Grade A space has meant that footloose UK wide requirements have been unable to be satisfied
“With prime rents stagnant at £18.50, the city needs to achieve rental growth in order to encourage further speculative development. The 166,500 sq ft MEPC / Rightacres development at Callaghan Square will significantly move rentals forward to £20 psf, and will encourage national players to look closely at Cardiff for the development.
Conversely, for occupiers the city can be seen as competitive on rents for companies looking to relocate to the city, particularly those who require a presence in Wales, however the city desperately needs to be able to provide the right product at the high spec that FTSE 250 companies now expect and demand.
Bristol in comparison, achieves Grade A rents almost 50% above those of Cardiff! Whilst this is a huge disparity, Bristol can offer a range of top quality office buildings at the cutting edge of specification initiatives for which large corporate companies are prepared to pay the going rate. Cardiff certainly still has much to learn from the successful office market of our nearest competitor.”
Stuart continues, “Without rental growth, which sustains development costs and helps meet new demands such as BREEAM Excellent ratings, the city will not be able to attract the quality of occupier relocations it needs to move forward and compete with centres such as Bristol.”
Despite prime rents lagging behind, the investment market has continued to perform well. Prime office yield in the city is currently 5.25%, unchanged from a year ago, with a total return of 22.8% recorded in 2006, the highest of all the nine centres in the report. GVA Grimley forecasts a considerably lower, but still healthy return of 9.5% for this year.