South Wales Report Occupier & investor focus on prime property is driving new development in Cardiff. 2018 would like to welcome you to our The 266,000 sq ft pre let at Central however we consider that its delivery business has certainty as to its future 23rd annual report on the South Square to the Government Property is vital for the two thirds of the Welsh relationship with the EU. Equally, IWales property market. Agency (HMRC) is the record office letting economy that is served by it. structural change in the economy will in Wales and has strengthened the case continue to impact upon demand with This series of reports has recorded the made by Welsh Government to the The electrification of the Great Western increased automation across all sectors, growth of the economy and property Department of Transport to improve mainline to Cardiff will be completed the rise of data, the continued shift to market across South Wales since the the capacity of Central Station. in late 2018 although, as we predicted e-commerce and the wider needs of a mid-1990s. We have recorded the last year, electrification westwards ‘just in time’ economy. development of the capital, Cardiff, into a Adopted in 2015, Cardiff’s LDP provides to Swansea was cancelled by UK leading UK regional city in terms of both for up to 40,000 new homes on mainly Government. Meanwhile, on the supply side, the employment and property investment. greenfield sites in edge of city locations. April 2018 deadline for minimum EPC In 1995, we worked with both the Welsh Multiple schemes are now underway Transport for Wales (TfW) is now tasked standards will impact upon the lettability Government Development Agency and driving innovation in construction with delivering the ‘South Wales Metro’ of our secondary floorspace. With certain Cardiff Bay Development Corporation, and calls for increased investment in which seeks to provide a fit for purpose exceptions, it will be unlawful to let a both long since abolished. Since the infrastructure around the city. integrated transport network across the building that does not reach a minimum creation of the National Assembly for ten local authorities of Cardiff Capital EPC standard of ‘E’. Wales in 1999, we have enjoyed working Devolution Region. TfW is also co-ordinating the with the Welsh on how increased The Wales Act 2017 changed the upgrade of stations, including Cardiff The primary challenge is, however, devolved powers can best be deployed. devolution settlement to a ‘reserved Central (as part of a wider £180m project that of delivery and the challenge to This year, we will see the introduction of matters’ model, as already used in called Metro Central) and is responsible government is to ensure improved Land Transactions Tax as a replacement Scotland. This means that all policy for awarding the new ‘Wales and the infrastructure, strategic development for stamp duty. areas are devolved unless expressly Borders’ rail franchise, with a decision plans, stronger regional governance and, reserved. The ability to borrow to and implementation both due in 2018. most importantly, incentives to develop Our first report was published shortly fund infrastructure was a welcome Grade A floorspace. before the opening of the Second addition whilst increased powers Regional Growth Severn Crossing and, appropriately, over energy and ports will provide The £1.228 billion Cardiff Capital Region Outlook this year we report on the forthcoming opportunities to improve City Deal provides £740 million of funding Cardiff has become the driver of abolition of the bridge tolls in economic performance. for Metro and £495 million for regional economic activity for the Welsh economy December 2018. investment projects. The £38m funding and the challenge is to harness this Following the devolution of business of IQE’s semi-conductor foundry in growth for the benefit of the wider Prime Markets Out Perform rates, the transfer of stamp duty has led Newport and £40m contribution to Cardiff Capital Region and to promote In the past 12 months there has been to bands and tax rates being announced ‘Metro Central’ are the first funding new development in both Newport an increased focus from both occupiers for a new Land Transactions Tax (LTT), streams to be announced. and Swansea. and investors for prime property. effective April 2018. Secondary stock has proved less In the immediate aftermath of the Brexit The abolition of the Severn Bridge tolls attractive to investors as it is seen to be The proposed increase from 5% to referendum and collapse of the Circuit of will provide a boost to the distribution more vulnerable to a slowing economy. 6% in LTT for commercial property (in Wales proposal at Ebbw Vale, the Welsh sector, whilst the manufacturing sector However, this sector will continue to excess of £1m) is a controversial step Government established a ‘Ministerial has been robust in the face of changes create opportunities for value creation with representations made to Welsh Taskforce for the Valleys’ under chair in the wider economy. by nimble investors. Government that this will disincentivise Alun Davies AM. A thorough consultation investors and developers. In addition, with Valleys communities has been JLL looks forward to continuing to Cardiff has remained the focal point a Vacant Land Tax is proposed; however undertaken. A £100m ‘Tech Park’ is work with national, devolved and local for both institutional investors and there are concerns about the impact this proposed at Ebbw Vale whilst a series of government to encourage the delivery new development with a complete will have upon investor sentiment, and ‘strategic hubs’ have been announced, of all schemes and policies that improve transformation underway of Central how underused land will be defined. not least in Pontypridd where a 100,000 the business environment. Cardiff Enterprise Zone, the area to sq ft office redevelopment of the former the north and south of Central Station. Infrastructure Taff Vale shopping centre is underway. Developers Rightacres and JR Smart The Public Inquiry into the proposed M4 are midway through a development Relief Road south of Newport is due to Challenges programme in excess of 1.25m sq ft report in summer 2018 with a decision The impact of Brexit upon the UK across Central Square and Capital due shortly thereafter. First proposed in and Welsh economy will continue Quarter, with a similar quantum 1991, this scheme illustrates the challenges to dominate the headlines. Bouts of of floorspace potentially developable in delivering large infrastructure projects volatility are likely to continue until Chris Sutton at Central Quay and Callaghan Square. Lead Director – Cardiff Introduction 2 South Wales Report | 2018 South Wales Report | 2018 3 2017 was a strong year for real Industrial (18%) and Alternatives (15%). 2017 was characterised by several high Capital estate investment in Wales with These figures do not include properties profile, pre-let, funding deals in Cardiff £910m transacted, up 127% from sold in multi-regional portfolios, which including L&G acquiring Central Square the EU Referendum hit 2016. would increase industrial’s market (£117m), Credit Suisse’s funding of UK investment reached £62bn, up 39% share, most notably M7/Blackstone’s 2 Central Square (£56.5m) and Aviva from 2016 and Wales was one of the acquisition of Dunedin and Brockton’s funding Barola’s 248-bed Premier Inn most improved regions by volume. HPUT portfolio, including Treforest in Cardiff city centre (£34m). This trend Across the UK, overseas investors Industrial Estate. reflects a strong appetite to build in the accounted for 56% of all transactions, capital albeit commercial development Industrial was undoubtedly the up again year-on-year from 44% in remains marginal elsewhere in Wales. most sought after asset class in the 2016. The main reasons for investing in past 12 months, driven by a positive UK property remain: liquidity, lot sizes, occupational outlook, demand for landlord-favourable leases, the strong Markets both largescale and last mile logistics UP 127% economic and leasing fundamentals, (as more retail shifts online), an and at present, relatively high yields undersupply of stock and strong returns £910m and a weak currency. transacted in Wales as measured by the IPD All Property Retail accounted for 35% of Welsh Index. The industrial investment stock transactions, well above the UK figure in Wales rests mainly in large portfolios. of only 13%, bolstered by key shopping Individual estate and single let asset centre deals including Morgan Quarter sales are relatively rare, particularly UP 39% in Cardiff and Friars Walk, Newport. given the lack of new, speculative £62bn Office transactions were 32% of the development. transacted in the UK total Welsh volume and this sector was the UK’s top performer, followed by Investment Volume by Sector in Wales 35% Retail 32% Office 18% Industrial 15% Alternatives Incl. Student, Hotels, Leisure & Health 4 South Wales Report | 2018 South Wales Report | 2018 5 Key deals Outlook Welsh Government has devolved 2017: powers in respect of stamp duty and has announced the introduction of a Land Transaction Tax. There is a proposed increase of 1% above the English rate and 1.5% above Scotland, on any commercial property sale over £1m in Wales, although with savings for smaller lot sizes. This move will make commercial development in Wales more marginal and is likely to have a negative impact on the perception of Wales as a location for investment. Premier Inn, Custom House, Cardiff – Forward funding of a One Central Square, Cardiff – Prime Grade A multi-let office 248 bed hotel, acquired December 2017 by Aviva for £34m. building of 133,000 sq ft sold to Aerium in July 2017 for £51m, UK government also announced at reflecting 5.5% NIY, setting a new benchmark for multi-let offices the 2017 Autumn Budget that it would in Cardiff.