Cardiff is continuing to attract a wide group of fast-growing tech and financial companies, according to a new report from Savills, as its office rents are some of the most affordable in the UK, with Grade A rents currently at £25 per sq ft.
The real estate advisor says that, so far in 2019, tech, media and telecoms occupiers have accounted for the greatest proportion of office leasing deals in the city, being responsible for 27% of deals thus far, led by Sky leasing 40,000 sq ft (3,716 sq m) of new Grade A space at 4 Capital Quarter.
Insurance and financial services companies have been the second biggest occupier group at 14%, including major lettings by fast-growing challenger banks Starling and Monzo in Q3: Starling acquired 14,000 sq ft (1,300 sq m) at Brunel House and Monzo added an extra 6,000 sq ft (557 sq m) to its existing space at 2 Kingsway, both in the city centre. With the challenger banking sector continuing to attract investment and rapidly expanding, Savills says that Cardiff is likely to see total Gross Value Added (GVA) growth from the insurance and financial services of 4.2% over the next five years rising to 14.3% over the next ten.
Gary Carver, director in the business space team at Savills Cardiff, comments:
“Cardiff is currently the most affordable regional office market that Savills monitors with Grade A rents currently sitting at £25 per sq ft, 29% cheaper than south west rival Bristol and 32% cheaper than Manchester. However we expect Cardiff office rents to grow to £27 per sq ft by the end of 2020, then £28 per sq ft in 2021 as deals begin to be signed at the new office developments due to complete in 18 to 24 months’ time.”
Currently Cardiff is suffering from a lack of Grade A space, says Savills, which has held back office take-up throughout 2019. Available supply in the wider city market currently totals just over 1 million sq ft (92,900 sq m), although just over 100,000 sq ft (9,290 sq m) of that is considered to be of Grade A standards.
“Occupiers looking for space within Cardiff can currently look to the development and refurbishment pipeline for pre-let opportunities but the city isn’t due to see any new schemes delivered until 2021. Legal and General is spending £10 million transforming Hodge House into 67,000 sq ft of contemporary office space by the end of 2019, and Fidelity are refurbishing the 63,000 sq ft Fusion Point building for occupation by mid-2020, so we expect these two refurbished projects to be key beneficiaries of the shortage of space before new developments come on stream in 2021/22.”
During Q1-Q3, Cardiff saw total office investment volumes of £62 million, 26% below the 10-year Q1-Q3 average and significantly down from the same period last year (although a further £26 million completed during October pushing year-to-date volumes up to £88 million) but Savills says this is not surprising after two years of exceptionally high volumes.
Ross Griffin, director in the investment team at Savills Cardiff, says:
“67% of all the offices bought in Wales this year have been bought in Cardiff, and the market remains healthy, with prime office investment yields remaining stable at 5.5%.”