The property and construction industries are seen as prime indicators for the outlook of the economy in general and it is no different here in Wales than it is elsewhere in the UK, including London.
During the recession construction activity and investment in property in Wales retracted at an alarming rate, such that we have seen the demise of many established building contractors and a rise in unoccupied property across the region.
You may expect this with any recession. However, the property and construction industries entered a more vicious downward spiral. Recessions result in occupiers requiring less floor space in order to service their businesses. As demand falls they reduce staff and in the case of some businesses machinery and plant. This results in the offloading of surplus property in an attempt to reduce costs such as rent, rates and maintenance.
Landlords left with vacant space are forced to reduce rents, renegotiate tenancies and implement incentives to tenants to make their properties more attractive. However, the net effect of all this not only reduces investment, but also deters new development as returns for developers are subsequently marginalised.
2014 has shown us something different, a turn of the tide. 2014 in my opinion will surely be looked back upon as the first year since 2008 where green shoots in the construction and property sector can be positively identified in Wales and hopefully can be seen as the beginning of a return to more prosperous times.
There have been some significant milestones in 2014 to demonstrate a new optimism in Wales and these include:
These milestones are all significant factors in terms of the economy in general and for reversing the downward spiral of the property and construction industries. They all demonstrate a clear change of tack from the top to stimulate forward economic momentum, even though there are significant hurdles to cross before we can all move into the territory of positive growth.
As we enter 2015, we have a firm foundation from which to grow, and, hopefully, resurgent economic confidence will see a welcome dawn for us all. So, what can we expect in 2015 for construction and property?
The signs are that the good news will continue with an increasing number of announcements in the press indicating strong job creation. This is the spur for property and construction as demand for space will inevitably increase.
The announcement and commencement of developments made in 2014 will become physical additions to our main cities in 2015; you only have to look at our skyline to notice cranes and frames already appearing. Business confidence will continue to grow with this physical change and as demand increases, rents will follow, stimulating investor interest. At a time when investors in London property are being limited due to price and demand from a foreign influx of money, property in the regions becomes more attractive and our new quality stock in Wales will inevitably come onto their radar. There will certainly be a continuation of investment interest in our main cities, which has already seen the exchange of some significant existing buildings to UK funds and institutions in 2014, such as Admiral House, Oakleigh House, Helmont House, Imperial Gate and Treforest Industrial Estate in and around our capital city.
The development of new building stock will also stimulate landlords of our vacant existing buildings to rethink their strategies to attract new occupiers. Vacant buildings around our cities will need to compete with the new, such that many will need to be refurbished, reconfigured, undergo change of use, or even be demolished. We will continue to see large industrial assets subdivided to make them more flexible and our office buildings, particularly in Cardiff, will be refurbished to provide a continued secondary use or where they are deemed obsolete converted to other uses such as student accommodation.
Wales is an attractive and exciting place within which to live and work. Our capital city is vibrant and forecast to be one of the UK’s fastest growing cities in terms of its economy. It retains its competitiveness when compared to other UK cities and it is only a matter of time before we attract major inward investment. This could well be in 2015.
To maintain this momentum, Wales must keep pace with technology and in particular communication and connectivity with its markets in London, Europe and even further afield. The Welsh Government has a direct and very important role to play in this respect to ensure infrastructure projects are realised. We will see the continuation of railway electrification and the implementation of superfast broadband, but there must also be further attention directed to what are significant obstacles to growth in the road network around Newport and of course the Airport.
2015 has the potential to realise much of what has been talked about and announced in 2014 in construction and property. There is hard evidence of implementation on the ground and this must continue. Exciting times lie ahead for this sector in Wales if the downside of skills shortages and rising costs can be overcome.
About the author
is Partner and head of the Cardiff office of property and construction consultancy, Tuffin Ferraby Taylor.
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