South Wales will need to capitalise on the delivery of key infrastructure projects in order to safeguard the future success of the region, according to Cushman & Wakefield.
The findings were presented at Cushman & Wakefield’s annual Property Outlook event for the Commercial Property Market for 2019 and beyond held at the Cardiff City Stadium.
Andrew Gibson, Partner and Head of Capital Markets at Cushman & Wakefield in Cardiff said: “Key infrastructure projects are linked to the future success and attractiveness of the South Wales economy. The Severn Bridge tolls have removed a barrier to entry and the region needs to further capitalise on this with greater levels of development. In addition, the electrification of the London train line and the South Wales Metro will be crucial in facilitating growth beyond the city centres.”
Investment volumes in South Wales were down in 2018, although not as much as expected, reaching a total of £632m. Six key transactions including Ty Admiral, Parmer Cardiff Waterside and DWP Treforest funding accounted for £385.7m (61%) of all 2018 transactional volume. Q1 2019 volumes were significantly down with less than £100m transacted compared to nearly £350m in Q1 2018.
Andrew Gibson continued: “Limited stock and appetite to transact due to uncertainty surrounding the outcome of Brexit continues to stall investment volumes. However, Q4 could see a hive of activity, depending on the October Brexit outcome.”
“Looking ahead, in the wake of the stabilisation of the student accommodation market, we anticipate that the residential PRS/Build To Rent sector will be the dominant growth area this year. As Cardiff continues to expand into a metropolis of activity and tall buildings, housing stock within close proximity to the employment centre will continue to be in greater demand. The Platform, Spitfire and L&G deals all represent significant commitments from major UK players in this PRS/BTR sector.
He added: “The success of this sector and the wider property market will be heavily aligned with the Welsh Government’s delivery of key infrastructure projects (M4 relief road / South Wales Metro) and their approach to any additional penal tax making power decisions.”
In the Offices market, Cushman & Wakefield Associate, Chris Terry warned that Cardiff is facing a shortage of stock. “At the end of Q1 2019, city centre availability stood at 518,000 sq ft which is the lowest since 2018 2013. Only 100,000 sq ft of Grade A space is left and this is likely to reduce to 75,000 sq ft within the next two weeks.
“We are anticipating that 158,000 sq ft will be added to the market perhaps later this year with the refurbishment of Hodge House, Caspian Point and Fusion Point 1.
He continued: “It’s been a solid start to the year with Q1 2019 with take-up hitting 149,000 sq ft, the largest letting being Sky’s 40,000 sq ft letting at 4 Capital Quarter. The focus on transactions remains to be for City centre offices and we expect this trend to continue in 2019.”
Take-up in the South Wales Industrial market in 2018 reached 2.3 million which was down on the previous year. The year got off to a strong start with the 270,868 sq ft letting of IP5 Imperial Park in Newport to NHS Wales, however there remains a severe shortage of grade A industrial stock.
Rob Ladd, Partner, Logistics & Industrial agency said: “The reduction in take-up reflects the shortage of good quality buildings suitable for today’s occupiers. Worryingly there is also a dearth in supply of serviced sites immediately available for development, so we expect take-up to continue to be below the five-year average in 2019.”
Current availability of industrial space in South Wales stands at 2.9 million sq ft which equates to just over 12 months’ worth of take-up.
Rob Ladd added: “The net beneficiaries of the removal of the tolls so far appears to be the regional distribution centres in Avonmouth and the South West. Removing the tolls has opened up South Wales as a pool of cheaper labour and helped alleviate employment difficulties previously experienced by the likes of Amazon and Lidl.”
There were also presentations from Darren Yates, Head of EMEA Retail Research & Insight who discussed ‘Opportunities Amidst Uncertainty’. He highlighted that despite concerns over Brexit and Global trade, UK business has ‘held its nerve’.
Darren Yates said: “The impact of Brexit on UK financial services and real estate has been over-stated with fewer firms relocating staff into EU countries than had been forecast. The threat of trade wars and protectionism is likely to have a far greater impact on the real estate sector, although Brexit may cause short-term disruption.”
He continued: “As Brexit and other sources of uncertainty dominate the headlines, we can get fixated on the ‘here and now’ but real estate is a long-term game.
“Over the coming years, there are many non-cyclical trends that will create opportunities for investors and occupiers who stay ahead of the curve. These trends will be in place regardless of global trade volumes, Brexit or any other external force.”
These opportunities include the next generation of tenants, the rise of Coworking and Alternative real estate, such as healthcare and student living, which accounted for an all-time high of 32% of regional investment volumes in 2018.
Darren concluded: “Markets that have strong fundamentals will stay popular with core investors. Meanwhile, the more challenged parts of the market will see pricing drift until they look good value for opportunistic investors looking to redevelop and repurpose assets. There is plenty of capital looking for these opportunities.”
Richard Pickering, Cushman & Wakefield’s Head of Futures Strategy concluded by discussing the impact digitisation will have on real estate over a longer horizon. He considered the potential for activities currently carried out using real estate to be substituted by digital alternatives, and posed the question, ‘Could this mean the end of real estate?’
“In short, no,” said Richard “however, we in the industry need to treat this as a wake-up call. The same trends we see today in retail, have the potential to bleed into other sectors. Digital business models tend to have cost and convenience advantages. This sets a challenge for real estate investors to reposition their assets and portfolios to focus on real estate’s inherent strengths, such as end-user engagement and experience. For the best innovations in this space we need to look increasingly outside of our industry, and be willing to challenge long held paradigms of the role of real estate.”