Bright future

Mark Jenkins, Divisional Director, Nationwide Commercial, offers his viewpoint on the state of the commercial property market in Wales

Nationwide Commercial has had a presence in Cardiff for over fifteen years and now has a loan book of over £750m secured on property in Wales. The local team works on property finance and social housing deals, supported by a structured property finance team in London for very large deals. The growth in Nationwide’s commercial loan book is indicative of the growth in the commercial property market that has been seen across the UK, with Wales being no exception in terms of the amount of money being invested.

New commercial property developments have been shooting up at all three of Wales’s key city locations with the transformation at Cardiff Bay and SA1 Swansea perhaps the most noticeable.

In Swansea the long-awaited city centre redevelopment appears to be finally gaining momentum with the council’s announcement of a City Centre Strategic Framework, which will look to secure investment for the city centre over the next 15 years, giving good reason to be positive.

Newport, on the other hand, has two city centre retail developments ongoing (Friars Walk and the refurbishment of the Kingsway Centre) and is benefiting from the establishment of an urban regeneration company, Newport Unlimited.
The office rental market in Cardiff awaits the much-vaunted £20 per square foot office rental which some agents claim has already been achieved for pre-lets at Callaghan Square Phase 2. Unfortunately the lettings market is not a perfect one, and information on rent free periods and other tenant incentives need to be factored in when calculating the real rental cost.

The acid test for rental values from a lender’s perspective is the secured lending valuation report, as the valuers have to commit to a Market Rental (MR) for a property at the request of the lender. I am not sure if a secured lending valuation report has yet been produced with a MR of £20 for a Cardiff office property!

Swansea and Newport are catching Cardiff up with office rentals in excess of £14 achievable for new Grade A premises. Interestingly, Grade A space in Swansea and Newport has a similar cost to secondary space in Cardiff. For employers with large office requirements however, the rental cost alone is not the key location factor. The quality of the workforce and ability to retain staff has a far greater impact on profitability.

South Wales has also seen several out-of-town office parks appear at key M4 junctions over the last seven years, providing a real choice between city centre and out-of-town locations to occupiers that had not previously existed.
The industrial sector in large parts of South Wales continues to have the unusual characteristic of build costs often exceeding the end values due to the rental values that can be achieved. This often acts as a major supply restriction for new industrial premises, a gap that historically the Welsh Development Agency (now Welsh Assembly Government) has bridged. More recently though, direct partnerships with the private sector such as Dragon 24 and the Welsh Investment Strategic Partnership (WISP) are bringing new quality stock to areas that the private sector alone cannot develop.

The recent announcement that empty rates relief will be abolished after six months ownership will present a potential negative cashflow period for investors and developers to factor in. In Wales we have a disproportionately high number of large ‘sheds’ linked to our manufacturing and industrial past.

We have experienced a record year in terms of monies loaned, with leisure, retail and industrial proving particularly busy in the past twelve months. The Cardiff office hopes to add in excess of £100m this year, and we do not see why the current market cannot support this.