Cardiff’s office space market experienced a significant uptick in the first half of the year. Demand has surged, according to Knight Frank’s latest research.
Total office space uptake increased by 27% compared to the same period last year, reflecting a dynamic shift in the market.
Significant Increase in Office Space Uptake
The demand for office space in Cardiff saw a substantial increase in the first half of the year, according to recent data from global property consultancy, Knight Frank. Total office space uptake from January to June amounted to 188,112 sq ft, representing a 27% increase compared to the same period in 2023 and surpassing the 10-year average by 4%.
This surge in demand includes the Welsh Government’s notable acquisition of the Centre 7 building at Cardiff Gate Business Park. The 50,000 sq ft building, purchased for £5.8 million, had been vacant since 2018 when Lloyds relinquished the lease. The Welsh Government plans to utilise this space to support the expansion of the compound semiconductor cluster in South Wales.
Diverse Occupier Sectors Driving Growth
Matt Phillips, the head of Knight Frank’s Cardiff office, highlighted the diversity of sectors contributing to this growth. He stated, “Partly as a result of this large deal (Welsh Government), the public sector was the most active occupier group, accounting for 28% of the space leased in the first half-year period.”
Besides the public sector, Cardiff’s office space demand draws from a wide array of 13 different occupier sectors. The city’s robust and varied occupier base underscores its growing appeal as a business hub.
Steady Prime Office Rents and Increased Supply
Knight Frank forecasts a significant rise in Cardiff’s headline rent, expecting it to reach £30 per sq ft by year-end, up from the current £25 per sq ft. This prediction reflects the city’s strong market demand.
On the supply side, there has been a notable increase in Grade A office space availability, standing at 391,647 sq ft mid-year. This represents a 38% rise compared to the same period in 2023 and 34% above the five-year average.
However, the overall market vacancy rate increased slightly to 12.5% from 12.3% the previous year, indicating a slight shift in the market dynamics.
Mixed Trends in Office Investment
Office investment in Cardiff remained modest in the first half of the year, with total volumes reaching £13.9 million, marking a 59% decline from the same period in 2023. This downturn underscores the cautious approach taken by investors amidst changing market conditions.
Prime office yields have softened by 100 basis points to 7.5% over the past twelve months, reflecting an outward movement of 225 basis points since the pandemic’s onset in 2020.
Future Outlook for Cardiff’s Office Market
Matt Phillips provided insights into the future outlook for Cardiff’s commercial property market. He noted two contrasting scenarios for landlords.
Older buildings that lack significant capital improvements are witnessing tenant departures, compelling landlords to decide between investing in upgrades or repurposing these spaces for alternative uses. This scenario poses challenges for maintaining lease agreements.
Conversely, new or recently refurbished buildings in prime locations are experiencing healthy leasing activity. Demand for well-located and amenity-rich buildings that support Environmental, Social, and Corporate Governance (ESG) aspirations is on the rise. This trend highlights the evolving priorities of businesses in choosing office spaces.
Limited Development Pipeline
Cardiff’s development pipeline remains limited, with only one new scheme currently under construction. The John Street project, which will deliver 113,360 sq ft of speculative office space, is scheduled for completion in 2025.
Conclusion
While Cardiff’s office space market is experiencing robust demand, the mixed trends in investment and development highlight the complexities faced by the sector. The diverse occupier base and rising rents indicate a healthy market, yet the future will hinge on how landlords and developers respond to these evolving dynamics.
Cardiff’s office space market presents an intriguing mix of opportunities and challenges. The rise in demand and diverse occupier base point to a promising future.
However, landlords and investors must navigate the evolving landscape carefully to capitalise on these trends effectively.
