Following significant demand in Q4 2020 activity was limited throughout the first quarter of the year.
Take-up in Cardiff remains restricted by the Covid-19 pandemic
After Q4 2020 take-up was 18% above the 5-year quarterly average, Q1 2021 unsurprisingly saw a significant reduction. Cardiff saw take-up of 39,881 sq ft, significantly below the same period last year and the Q1 five-year average. The majority of take-up has been for secondary space with just 13% being Grade A.
The Public Services, Education & Health sector accounted for the majority of take-up (57%) totalling 22,771 sq ft. The largest deal for this sector was from the Department for Work and Pensions, which let 13,168 sq ft of Grade B space at Ty Bevan, Llanishen – this was also the largest office letting in Cardiff during Q1. The Department For Work and Pensions was significantly active throughout the UK regions during Q1 signing for a combined 371,613 sq ft across 20 deals, 16 in Greater London & the South East, as well as individual deals in Birmingham, Bristol and Leeds .
Other key deals for this sector included Shaw Health Care, which leased 5,780 sq ft at 2 Links Court and Advance Medical Simulation, which signed for 2,202 sq ft at 2A Oak Tree Court. There was also significant activity from the Business & Consumer Services and Extraction & Utilities sectors which accounted for 17% and 8% of take-up, respectively.
The majority of demand in the market is currently from requirements that are under 5,000 sq ft, with a strong presence of SMEs in Media and Technology. This was evident throughout Q1 as over 80% of deals were below 5,000 sq ft. The Financial Technology (fintch) sector continues to be particularly active in Cardiff and Savills is aware of at least four office requirements currently in market from fintech companies which are moving out of serviced space into their own private offices.
Since the end of 2020, supply in Cardiff has increased by 9% and currently totals around 1.3 million sq ft. Grade A supply in the city centre accounts for approximately 26% of availability at 347,000 sq ft.
This year, we have seen around 130,000 sq ft of Grade A 'grey space' come to the market, which has contributed to the increase in supply. This is because some companies in the Financial and Professional Services have downsized, in response to increased home-working throughout the pandemic.
Following the pre-let of the entire 120,000 sq ft Interchange building on Central Square to Legal and General during Q4 2020, there is only one development on-site in Cardiff with available space. John Street, Callaghan Square totals 109,000 sq ft and is expected to complete in the spring/summer of 2022.
Currently, the prime rent in Cardiff remains at £25 per sq ft. While we have seen no evidence of prime rents in Cardiff reducing below this rate we have seen occupiers negotiating for larger incentives due to the current economic uncertainty in the market as a result of the Covid-19 pandemic. However, Savills expects Cardiff will begin to see rental growth throughout 2022 with Grade A rents reaching £27 by the end of 2023.
Has the pandemic widened the talent pool for office occupiers in Cardiff?
The war for talent has typically seen occupiers flock to major cities with high population densities and access to skilled and talented workforces. While the Welsh capital has always been an attractive spot for occupiers, the office market is much smaller than many of the other key UK regional cities.
However, the Covid-19 pandemic has caused many people to re-evaluate both their home and working arrangements and as a result there has been significant activity in the Welsh housing market. House prices in Wales grew by 7% in the year to March 2021, according to Nationwide; the highest level of growth since June 2014. High house price growth in Wales is likely to continue over the next few months, due to the large gap between demand and supply.
According to the RICS, surveyors’ have consistently reported a more widespread rise in buyer enquiries than new instructions to sell since last autumn and their expectations for price growth over the next three months are at the highest level since 1999.
Savills predicts that high price growth and transaction numbers are likely to continue into the summer before cooling slightly in the second half of the year.
The Covid-19 pandemic has likely been one of the main drivers behind this huge influx of buyers, overwhelming the supply of available and affordable property. Many current home owners are re-evaluating what is important to their current living arrangements, such as a garden, more space, a thriving community or a view, and acting accordingly.
More people moving into Wales will not only benefit the local economy, but will widen the talent pool for office occupiers within the Welsh capital, providing significant opportunities for growth in Cardiff's office market.
Throughout the first quarter of 2021, Cardiff saw total commercial investment of £30 million, the majority of this was for offices (96%), which totalled £29 million.
While the UK occupational and investment markets remain affected by the significant disruption caused by the Covid-19 pandemic, Cardiff’s Q1 office investment fell just 13% below the same period last year and the 10-year quarterly average.
The majority of office investment during the first quarter came from overseas investors which accounted for 87% of investment, in value. There was also activity from UK property companies which accounted for the remaining 13%.
Key office deals included the sale of 3 Harbour Drive to Middle Eastern investors KAMCO Investment Company for £25 million and the purchase of Suffolk House by Fiera Real Estate for £3.6 million.
Unlike most of the other UK regional cities, during 2020, there was no evidence of Cardiff yields shifting outwards as a result of Covid-19. Prime and secondary yields therefore remain strong at 5.5% and 7%, respectively.
The strength of Cardiff's fintech cluster continues to be recognised
Cardiff’s growing network of successful fintech companies makes the city a prime location for fintech occupiers globally.
Cardiff is home to a number of exciting and promising start-ups and SMEs that are fuelling innovation and growth within the city. Between 2018 and 2019, the number of business start-ups in Cardiff increased by 8.3%, significantly above the UK average of 2% for the same period. In Cardiff and the South East of Wales, the fintech industry has created an incredibly successful cluster contributing £2 billion Gross Added Value (GVA) to the Cardiff Capital Region economy.
In February, Cardiff, along with South Wales, was recognised as one of 10 areas in the UK that are producing high-growth fintechs with huge potential. Some of the most prominent fintech businesses that have already moved and grown in Wales include Vizolution, Backbase, Wealthify, Starling Bank, and confused.com. Some of these companies aim to provide more accessible financial services and lower costs, while others may service investors and other businesses.
The fintech industry is therefore a significant source of office demand in Cardiff and at present Savills is aware of at least four office requirements currently in market from fintech companies which are expanding and therefore moving out of serviced space into their own private offices that can facilitate a higher headcount of staff. This growth of fintechs in Wales is set to get greater as in April the ‘FinTech Wales Foundry’ programme was launched. The Foundry, is a not-for-profit and non-equity accelerator programme that operates by pairing exciting fintech companies with some of Wales’ leading organisations. Business accelerators offer startups support services and funding opportunities aimed at enabling growth. The growth of startups is a key contributor to office demand in Cardiff and therefore the FinTech Wales Foundry is a welcome addition to the market.
Savills is aware of at least four office requirements currently in the market from fintech companies which are expandingSavills Research
Cardiff’s fintechs continue to go from strength to strength and in May, Sonovate, a provider of on-demand business finance and technology solutions, funded a record £55 million – cementing the Cardiff and London-based SME as one of the UK’s most established and scalable fintechs. Earlier this year, Cardiff based Delio was selected to participate in the 2021 FinTech Innovation Lab New York. A 12-week program founded by Accenture and the Partnership Fund for New York City, that helps early- and growth-stage enterprise tech companies accelerate product and business development through in-depth engagement with top financial services and venture capital executives.
All this activity in Cardiff has made it extremely attractive to fintech companies globally. This May, it was announced that Barcelona based blockchain technology provider Finboot plans to open an office in Cardiff, which will be its first outside of Barcelona. The Enterprise Software as a Service (SaaS) company identified Cardiff as a base for its new office after securing a £2.4 million equity investment from investors including the Development Bank of Wales and energy company Repsol.
The Cardiff Capital Region has made fintech a priority sector and it shows, the developing ecosystem within the city will be a Significant source of employment and economic growth over future years to come. Oxford Economics latest forecasts are predicting that the Professional, Scientific and Technology sector will see impressive GVA growth of 22% over the next five years with the sector also seeing 6% employment growth over this period, equating to over 1,100 new jobs within Cardiff.