- Cardiff’s economy is forecasted to grow by 5.4% during 2022, more than double the pre-covid ten year average growth rate.
- The city’s next phase of regeneration is now in motion, with the key schemes being Central Quay, Dumballs Road and Atlantic Wharf.
- Demand for office space is likely to be constrained as occupiers look to revisit their spatial needs – however, a number of larger scale requirements scheduled for 2022 may reinvigorate the market
- Cardiff’s status as a big event city remains, despite the paucity of events that were actually able to happen over the last 2 years. This underpins the hotel, leisure and food and beverage offering.
- Despite being a relatively small Big Box market, demand for industrial and warehousing space is strong and driving value growth across the wider market.
- The Build to Rent (BtR) market is about to be tested, three schemes under construction and increasing investor interest.
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Cardiff’s economy is expected to grow by 5.4% during 2022, more than double the pre-covid ten-year average growth rate of 2.1% - although the slowest of the UK’s major cities that we monitor. Much of this growth will be bounce back from those sectors hardest hit during the pandemic – with accommodation and food services expected to grow by 29.5% and arts and entertainment by 17.9%. These are both areas of significant strength for the city – and demand across the leisure sector is already playing out across the city. Elsewhere, the transport and storage sector is forecast to grow by 9.1%, the strongest growth in the sector since 2010.
Total employment will rise by nearly 5,300 posts to a record high of over 240,000. Around 1,800 of the new jobs will be office-related. Unemployment is forecast to fall from 5.7% in 2021 to 5.0% in 2022, although this would still leave the figure well above the 3.1% recorded in 2019.
Public sector investment continues to be put into public transport improvements such as Cardiff Crossrail and the South Wales Metro, which will improve access to the valleys. 2021 saw the Welsh Government write down the investment that had already gone into the M4 relief road, suggesting that improved road access there is, for the time being at least, dead in the water – despite calls from businesses and the CBI for investment into the M4 corridor.
The city is very much focused on the next areas of regeneration, as Central Square – now home to BBC, L&G, HMRC, University of Cardiff and Hugh James - begins its final phases. Central Quay, Dumballs Road, Atlantic Wharf and the redevelopment of the Motopoint Arena will be the next areas of focus, with public transport improvements in particular opening up the latter.
CARDIFF DASHBOARD – ECONOMY
Occupier activity during the course of 2021 was slowly improving, with liquidity in the market returning to ‘normal’ levels during the second half of the year. Nevertheless, the majority of demand continues to come from the smaller end of the market, and from the health and public sectors. Going into 2022, the increase in the number of requirements at the larger scale – 20-70,000 sq ft - bodes well for the market, including several to Public Health Wales along the M4 corridor.
The city centre vacancy rate is historically relatively low at 6.3%, but up from the 4.2% at the end of 2020. This has been driven by a handful of occupiers returning ‘grey’ space to the market including Hugh James Solicitors, Deloitte, Eversheds, Centrica British Gas and Admiral. PwC are making use of an annual rolling break to better understand their options in the medium term.
During 2022, there is new space due to come online with the completion of JR Smart’s 109,000 sq ft office development at John Street, Callaghan Square. Groundworks are also underway at Rightacres’ 60,000 sq ft Brewhouse, its latest development at Central Quay, the former Brains brewery site. A sizeable pre-let will be required before the 220,000 sq ft Ledger Building gets underway on the site.
There has been no movement on headline rents over the past few years which remain at £25 per sq ft, with rent free periods at 18 months on a ten-year term. Despite limited supply, there is little room for significant rental growth in the short-term, as the effects of the pandemic continue to shake out.
CARDIFF DASHBOARD – OFFICES
Retail, Hotels and Leisure
Cardiff’s status as a big event city remains, despite the paucity of events that were actually able to happen over the last 2 years. This underpins the hotel market, with the city council keen to drive investment in the city centre and to the major regeneration projects. The residential development scheme at Dumballs Road and the development of the arena at Atlantic Wharf will bring the Bay and city centre closer together.
If everything planned were to be developed, Avison Young estimate that Cardiff has the capacity to absorb a further 1,800 bedrooms rooms over the next decade. While this could create some short-term supply issues, the net additional stock is likely to be much lower, as the improvement in Hotel product will increase the obsolescence of some of the tertiary stock in the city, which is likely to be lost to alternative uses. There will be a number of market opportunities (both fixed income investments and variable income franchises) in 2022.
While there continues to be new retail entrants to the city, with 15:17, Leekes, Home Bargains, TK Maxx, Bo Concept and Morphe all recent additions, the city suffers the same as a number of other major retail markets, with vacancy high at 24% even across prime units (18%). This has driven down Zone A rents more than 10% in the last year to £180 per sq ft. This will continue to drive repurposing, with the former Howells under offer for redevelopment. As retail stock is lost, this will help underpin the value in the remaining stock. The strength of demand for F&B, will also see retail stock repurposed – with Ivy Asia taking the former Cath Kidston and Seasalt Cornwall stores.
The leisure offer in the city is improving significantly with the velodrome’s move to the other side of the city creating a Sports village – in close vicinity to the ice rink and pool, and Marks and Spencer due to take part of the Toys ‘R’ Us space. The city will also continue to see an increase in new entrants to the city both in terms of new uses and experiential leisure. Boom Battle Bar opened during 2021, while Heidi’s Bier Bar and Gareth Bale’s Par 59 are due to open during 2022.
CARDIFF DASHBOARD – RETAIL
Wales’ big box market remains small, despite recent activity. However, additional requirements in the market might drive further development at the scale across the M4 corridor during the course of the year, although Cardiff itself has very limited suitable development land. The development at St Modwen Park in Newport continues to attract strong demand. FI Real Estate Management recently acquired 47 acres of land at the Wrexham Industrial Estate, in addition to the 38 acres of land it already owns. It plans to build 400,000 sq ft of storage and distribution space.
Across the market, strong demand, with limited supply continues to be the story. At the larger end of the market, 2021 saw Genpower take a 100,000 sq ft spec build in Newport and Amazon acquire over 300,000 sq ft to partly service the Welsh market just across the border in Avonmouth. At the smaller scale, growth is being driven by SMEs, 3PLs and the NHS. This robust demand and limited supply will continue to drive rental growth in the market.
CARDIFF DASHBOARD – INDUSTRIAL
House price growth in Cardiff was exceptionally strong in 2021, at almost 12%, above the UK average. This has fed through to the land market and developer demand is strong. We expect house price growth to slow in 2022 but remain strong relative to pre-pandemic levels and ahead of the wider UK. As with trends we are seeing across the UK, larger houses with private outdoor space have outperformed and this trend is something we expect to continue albeit more moderately.
Build to Rent (BtR) is beginning to emerge in the city with three schemes under construction and increasing investor interest. Until recently, it had been difficult to unlock land for BtR in the city but this is becoming increasingly viable and we also expect attention on suburban opportunities in single family BtR housing. Cardiff looks well placed to benefit from the emergence of a more ‘mid-market’ BtR product as opposed to the typically high specification premium schemes we have seen elsewhere.
Investor sentiment in Cardiff’s PBSA market is somewhat mixed. The city has a positive demand picture, with multiple institutions, a Russell Group university and a growing number of students. However, concerns around high supply of PBSA in recent years has led to caution. With the pipeline now slowing, we believe that if occupancy rates remain high, investor demand should improve over 2022.
CARDIFF DASHBOARD – RESIDENTIAL