Swansea’s office rental market has experienced remarkable growth, standing out as one of the UK’s strongest. Tight vacancy rates and limited new supply are key factors.
As new projects emerge, the city is set to face both opportunities and challenges in attracting private sector tenants to its evolving landscape.
Swansea’s Rental Growth Surge
Swansea has witnessed one of the most significant increases in office rental growth across the UK, experiencing an average rental rise of 2% this past year. Commercial property consultancy CoStar credits this surge to decreasing vacancy rates coupled with a shortfall of new high-quality office spaces. Meanwhile, a surge of new development projects is underway, promising to transform the current landscape.
Demand Outpacing Supply
Remarkably, Swansea is among the few urban centres in the UK where demand for office space is outstripping the area vacated in the recent year. The net absorption rate, which gauges occupied stock, rose by approximately 27,000 square feet, allowing Swansea to outperform most office hubs across the country.
This development has significantly widened the gap between Swansea’s vacancy rates and those in the broader UK, hitting unprecedented levels. The steady demand, exacerbated by economic uncertainties and high building costs, has compounded the low rates of new construction efforts.
The lower availability of new quality office space has been a significant factor in Swansea’s robust rental growth. This trend, if sustained, could further challenge businesses seeking new premises, potentially leading to more creative solutions in space utilisation.
The Evolving Swansea Market
Swansea stands as one of the UK’s smaller office markets, comprising approximately seven million square feet of stock, representing around a quarter of the size of neighbouring Cardiff.
Vacancy levels in Swansea are among the lowest in the UK, recorded at just 3.5% — a stark contrast to Cardiff, where vacancies approach 8%. The past decade has seen more demolitions than new builds, with less than 100,000 square feet of new office space created in five years.
However, with several significant projects nearing completion, the landscape is set to change. Notably, the upcoming Kingsway Digital Village scheme is poised to introduce 100,000 square feet of space — the largest addition to Swansea’s market in over fifteen years.
Despite current low vacancy rates, the advent of new developments like the Kingsway Digital Village and Princess Quarter is expected to exert upward pressure on vacancy rates.
Market Challenges and Opportunities
Swansea City Council’s infrastructure projects, such as the Kingsway scheme, include demolishing properties on Oxford Street to improve connectivity and are close to finalisation. The 16,000 square feet of sustainable office space at Princess Quarter in Swansea’s city centre is expected to command rents exceeding £20 per square foot.
The city’s market will face a critical test in attracting private sector tenants to these new office projects. The prevailing headline rent remains around £15 per square foot, yet the hope is that new grade A spaces will elevate this towards the £20 mark and beyond.
Interestingly, Swansea’s average rent stands at roughly £12 per square foot, in contrast to Cardiff’s £14.50, with a headline rent of £25 per square foot.
Current Leasing Dynamics
Demand for new, sustainable office spaces is on the rise, driven by businesses aiming to comply with future ESG regulations and attract top local talents.
Despite the heightened interest, Swansea is not a high-volume leasing market; notable transactions have been sparse. In the last decade, only a trio of deals exceeding 50,000 square feet materialised. Most recently, Andrew Scott’s acquisition of a 10,700 square feet office at Enterprise Business Park marked a significant deal.
Businesses recognise the necessity to move swiftly with new space offerings in Swansea’s central business district as there is no foreseeable new supply post this year’s developments.
The limited availability of spaces could pose challenges for businesses with impending lease expirations, prompting a potentially competitive market.
Future Trajectories
The introduction of new spaces in central Swansea is foreseen to entice local enterprises, offering prospects to secure their long-term presence in the city.
Tenants must act decisively, as there is no additional space slated for delivery after the current year, restricting options for businesses facing lease renewals.
With ongoing development projects, the city’s office market seems poised for both opportunities and challenges as it navigates evolving demands and supply conditions.
Conclusion on Swansea’s Market Performance
Swansea continues to demonstrate resilience and potential within the UK’s office rental market despite challenges posed by limited space and high demand.
Despite its size, Swansea is exhibiting noteworthy growth in office rentals, reflecting resilience amidst challenges like limited space and rising demand.
The city’s ongoing developments promise to shape its market dynamics, influencing future rental trends and tenant interest.
