By Gary Carver,

Director in the office agency team

Savills, Cardiff

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Despite the volatility and uncertainty in the wider economy at the end of last year, the performance of the Cardiff office market was strong with the market recording its best take-up since 2018 at 459k sq ft, up 80% on 2021 and 9% up on the five year annual average. Following a two-year period dictated by a rise in home working and flexible arrangements, coupled with a flight to quality and shrinking office footprints, we have recently started to see more and more occupiers nailing their real estate colours to the mast…indecision is so 2021!  So what does 2023 look like for the Cardiff office market?

Market polarisation as ‘Super Prime’ flies    

A continued migration of employees back to offices is putting increasing pressure on businesses to deliver the very best employee focussed workspace. As a result the need for wellness space has never been greater and, when considered alongside the requirements for occupiers of all sizes striving to meet sustainability objectives, this all points to an ever growing demand for ‘Super Prime’ office space.

Grade A has traditionally been used to describe what is perceived as the best quality accommodation however, whilst we have seen elements such as design, technology, ESG and sustainability all evolve over the last decade, the Grade A classification has remained broadly the same.  As a consequence, 2023 will see a widening of the gap between prime and “standard” Grade A, with upward pressure on prime rents and a slowing leasing velocity and increasing void rate in vanilla offices masquerading as Grade A.  Even more dramatic will be the increasing number of office assets across the UK that will become stranded as some landlords, faced with limited capital and challenging refinancing discussions, are unable to refurbish and increase standards to meet ever evolving occupier demands. 2023 will see the best get better, but without investment the average will get worse!

Should I stay or should I go…..

As a result of the historic UK leasing structure which saw office occupiers typically signing a 10-year agreement, the majority of existing stock requires significant intervention to respond to current  tenant demands. We already know that occupier requirements have advanced, but how this impacts their decision making process when it comes to renewing or relocating will be key this year. Our expectation is that, driven by an appetite for more modern space that will help in the battle to retain and attract talent, as well as potentially reducing footprints, we are likely to see more businesses seek to relocate and not renew. In Cardiff, there is only around 300,000 sq. ft. of Grade A space available to let immediately. This lack of new available stock in Cardiff may prevent some of these relocations happening. Occupiers will need to act quickly whilst landlords will need to work harder than ever to retain occupiers.

The future is flex

Over the past couple of years we have seen a number of forward thinking landlords recognising the benefits of flexible office space and become early adopters of including it within their overall office offer. As we move forward in 2023, we expect this trend to continue as the need for agility that allows occupiers to scale up and down as required, becomes a vital requirement. This will either be through landlords offering flex space directly or through a serviced office operator. We also anticipate that significant service charge inflation will play a part in some businesses looking to reduce footprints by circa 10% as they grapple with the conundrum of rising costs vs the need for quality. The provision of flexible space in the same building as conventional offices will not only provide an ability to flex up and down, but it will also act as insurance against businesses who may underestimate the desire and need of colleagues to be in the office.