Cardiff city centre weakest office take-up for over 2 years20th August 2012

A DTZ report has revealed that Cardiff city centre has had the weakest office take-up for over two years in Q2 2012

Cardiff city centre activity in Q2 was very subdued with total office lettings at 37,300 sq ft. The volume of occupier enquiries has diminished since the end of last year whilst ongoing enquiries are failing to translate into deals due to ongoing occupier uncertainty.

The transactions that did take place were mostly grade B deals of less than 3,000 sq ft again, predominantly triggered by lease events.

Total city centre availability increased in Q2. Grade A availability remained flat meaning the restricted supply of prime stock in the city centre remains an issue. In contrast, Grade B and C availability both increased due to space coming back to the market and the completion of a refurbishment.

The development pipeline is sparse and DTZ expects the market to become even more polarised. A lack of transactions on new space this quarter meant that estimated prime headline rents remained at £22 per sq ft. It remains to be seen whether this rental level can be maintained on larger deals later in 2012.

Renewed uncertainty about the future of the eurozone, disruptions to the banking sector and a weaker outlook for regional occupier markets has heightened investors’ sensitivity to risk. Funds are now typically seeking annuity-type prime investments with 20 years or more of unexpired income.

The largest city centre deal in Q2 was to Bridgend College, which acquired 13,300 sq ft of grade B office space at 45 Penarth Road for change of use to education. Jones Lang LaSalle downsized its own operation to 4,300 sq ft in a relocation from Haywood House on Dumfries Place to 1 Kingsway.

The out of town market, which includes the Bay, also experienced a quiet quarter with office lettings totalling 43,000 sq ft. The most notable transactions included a further expansion for Scottish & Southern, which took 8,500 sq ft at Eastern Business Park and the 6,650 sq ft grade A freehold sale at 9/10 Neptune Court to a private purchaser.

Alex Easton, Associate Director in DTZ’s Cardiff office agency team, said: “After a robust first quarter, take-up fell to around 80,000 sq ft across Cardiff in Q2, with only 37,300 sq ft transacted in the city centre.

“Again, most deals were for less than 5,000 sq ft each, apart from a limited number of more significant lettings and sales which included Bridgend College’s acquisition of around 13,000 sq ft at Penarth Road for a new arts project. This was the only city centre transaction over 10,000 sq ft.

“Interestingly, this transaction was yet another office letting requiring a change of use, which is becoming an emerging trend for older, city centre buildings nearing obsolescence. Other notable examples include Summit House on Windsor Place (student accommodation), Dominions House on Queen Street (hotel use) and Trinity Court on Newport Road (education). The trend is likely to continue into Q3 with lettings of a similar nature in the pipeline.

“Although enquiries remain patchy, there is good underlying demand for Grade A space from the likes of Hugh James, Morgan Cole and Legal and General, led by lease expiries and the BBC contemplating a possible relocation from Llandaff.

“With the current availability of new city centre Grade A accommodation remaining at an all time low of around 45,000 sq ft, these requirements will be hard to satisfy unless pre-lets are agreed on new builds.”