Cardiff was only UK city to see prime office rents rise

by Sion Barry - 19/11/2009

"CARDIFF was the only major city in the UK to see its headline rent for prime office space rise this year, according to research from Knight Frank."

The chartered surveying firm’s winter 2009 office market activity report for South Wales also shows that the office markets in Swansea and Newport have the potential to see their so-called prime headline rents moving upwards next year – providing new stock becomes available

In Cardiff the first £21 per square foot deal for office space were struck in the second half of this year, with architecture firm B3 Burgess taking just over 4,000 sq ft at the Callaghan Square scheme in the centre of Cardiff.

And last month corporate law firm M&A Solicitors – together with corporate finance firm Gambit – signed up to just over 10,000 at the 3 Assembly Square scheme in Cardiff Bay, also at £21.

However, Knight Frank said that securing the best deals was not without cost to landlords, with some potential tenants seeking as much as 30 months rent free on 10-year leasing deals.

Claire Higgins, head of commercial research, said of the capital’s office market: “Activity will fall further as the recession and its aftermath drags on, but we do expect prime headline rents to be preserved at their current level, which is in direct contrast with the remainder of the UK’s key office markets.

“A further issue for Cardiff is its dependence on the public sector. Many key private sector occupiers are using the current conditions to relocate and upgrade. Encouraging inward investment into Cardiff is more key now than ever.”

Matt Phillips, head of Knight Frank’s Cardiff office, said: “We expect prime headline rents to be preserved largely because high profile grade A product in Cardiff is limited to just two city centre schemes, at Callaghan Square and Cardiff Waterside.

“We anticipate that landlords will have to be increasingly generous, particularly if trying to secure blue chip occupiers or, conversely, if they own second-hand product. For the latter, they may also offer very flexible lease terms simply to try and reduce their liabilities.

“Finance remains a major issue throughout the industry. Still, Cardiff’s diminishing grade A supply creates a good opportunity for speculative development. Certainly we would expect those who can capitalise, such as JR Smart with its speculative Capital Quarter scheme, to be rewarded.”

In Newport Knight Frank described the headline prime rent of £16 per sq ft as “respectable”, which can be built upon providing the right schemes can be brought to market.

Its report adds: “Newport continues to benefit from the public sector cluster at Junction 28, helped by its position between Cardiff and Bristol.”

However, the report highlights concerns over future availability of grade A office stock.

At present the city, which next year will host the Ryder Cup, currently has only 120,000 sq ft of new and refurbished stock. However, it anticipates that all the space could be taken up by the end of 2010.

The report says: “There are no schemes in the immediate pipeline. However, given the relative take-up of Newport’s existing grade A product, there is concern that developers may not have the appetite for further speculative development.”

In Swansea, the principal focus of activity remains at its SA1 waterfront scheme.

The city’s prime headline rents of £14.50 sq ft, achieved in 2008 with the Vehicle and Operator Services Agency taking 30,000 sq ft at the Ellipse Building – with motor insurance group Admiral taking just over 12,000 sq ft at the same building this year, also at £14.50.

More Details: http://www.walesonline.co.uk/business-in-wales/business-news/2009/11/18/cardiff-was-only-uk-city-to-see-prime-office-rents-rise-91466-25195615/