JLL on S Wales offices: Grade A shortage as Grade B availability climbs
Today, the last part of our look at JLL’s South Wales Report for 2011. The market for available office space in South Wales did not have an easy time last year, with occupier uncertainty and limited activity throughout the region. Despite the difficult conditions, take-up held up reasonably well in Cardiff – in contrast to Swansea and Newport. Admiral Insurance, which is Wales’ only FTSE 100 company, has been relatively unaffected by the recession. JLL says the continued growth of Admiral will play a critical part in the South Wales office take-up over the next three years.
The release by the public sector of Grade B office space onto the market has led to a notable increase in the availability of office space in South Wales, while the lack of new developments means there is a shortage of Grade A space, as seen elsewhere in the UK. While headline rents for prime offices have remained stable, there have been significant tenant incentives. JLL expects rental growth and tighter incentive levels as the lack of Grade A space continues. No new developments of such space in Cardiff are due over the next 12-18 months as finance for such projects remains unavailable.
Take-up in Cardiff last year reached 426,000 sq ft, which was up 12% from the previous year but 15% below the long-term average. JLL notes that of this total, around 46,000 sq ft was office space taken up for alternative uses including a hotel, residential and community use. There was a shift towards the smaller business sector, with the average transaction size below 5,000 sq ft. The firm thinks this will continue over the next 12-18 months as notable lease events for larger occupiers are not due until 2013-2014. As occupiers downsize and exercise break options on Grade B property, the available stock of office space in Cardiff is expected to increase this year from the 2010 year-end total of 1.3m sq ft.
The Newport office market, in which the public sector features heavily, has suffered badly over the past year with take-up at less than 40,000 sq ft and a further rise in available Grade B space expected this year. In Swansea the dependence on public-sector occupancy is even stronger, with around 40% of the city’s workforce in the public sector. Take-up in 2010 was 50,000 sq ft. JLL says there is desperate need for new Grade A space in the city centre but the appetite to develop such space does not exist unless a pre-let is secured.
“The lack of appetite by developers and banks is understandable, however we must try to work together to push ahead with new development, particularly with the predicted lease events in 2013/2014 for the large occupiers. We cannot afford to do nothing and at the very least strong consideration should be given to the refurbishment of well-located secondhand office buildings,” JLL says.
