South Wales is set to attract a high volume of overseas investment in 2017, according to JLL.
Its annual South Wales Property Market report is positive about the prospects for the region, although it predicts patches of uncertainty as a result of Brexit.
The weaker pound and stable returns will mean that the region, particularly Cardiff, will attract strong interest from foreign investors, says the report.
“South Wales remains an integral part of the UK economy, one of the world’s strongest economies. The region offers property investors resilience, liquidity and transparency,” said Chris Sutton, head of JLL’s office in Cardiff.
“We expect commercial property values to remain broadly stable in 2017. However, we expect the gap between prime and secondary offices to widen as investors focus on high-quality properties that offer greater resilience in terms of occupier interest.
“We also expect investment in alternative sectors, such as student housing and retirement living, to increase [because] their income streams are often less vulnerable to economic uncertainty than traditional commercial properties.”
Investment volumes in Wales were £400m down in 2016 from the all-time record of £1bn in 2015, but broadly in line with the 2008-16 average. Overseas investment accounted for 44% of all UK commercial property investment.
Cardiff’s office market experienced record take-up of 685,640 sq ft in 2016. However, availability of space continues to decrease and now stands at 712,000 sq ft, which is 11% below 2015 levels.
While 2016 showed a spike in the completion of Grade A office developments, the high level of take-up has resulted in only five city centre buildings currently offering space of more than 15,000 sq ft.
“We expect speculative office development to continue in 2017 but the focus will be on Cardiff,” said Sutton. “JLL predicts a seismic shift in how and where we work will take place by 2030 and the buildings we work in must reflect this, which means offices being built now must have a firm eye on the future.”
For the South Wales industrial property market, demand is expected to rise but supply is falling. Take-up of space in 2016 was up by 27% on the previous year but the availability of units larger than 100,000 sq ft was down by 32%. Total availability of industrial space has fallen by 5%.
JLL said that urban logistics, essentially the distribution of goods in urban areas, was likely to dominate the industrial sector in the coming years, illustrated by the letting to Amazon at Celtic Business Park, Newport.
The proposed reduction in the Severn Bridge toll together with the proposed M4 relief road will strengthen demand for space from these companies, the report said.
The M4 Corridor in South East Wales remains the core area of industrial activity. However, there is increasing demand for secondhand space north of the M4.
Sutton added: “High-profile deals with Aston Martin and General Dynamics illustrate the strength of the ‘Wales offer’ to inward investors. We expect, however, reduced activity in this sector until there is clarity on our future relationship with the EU single market.”
The energy sector is forecast to grow, with the Wales Act, which became law on January 31, presenting new opportunities for Wales to become a hub for renewable energy projects in particular.
The act gives the National Assembly new planning approval powers for energy-generating projects up to 350 megawatts, rather than just 50 megawatts – this means most renewable energy schemes such as on- and off-shore wind. The changes come into force in 2018.
Sutton said: “This is important for Wales as it should simplify the planning regime for many energy projects and could speed up delivery. But it’s important that the Welsh government seizes this new opportunity and promotes Wales as a hub for energy-sector investment.
“Alongside major projects, such as Hinkley Point C, this has enormous potential for the construction sector, supply chain and labour market.
“While there are challenges ahead, there are also big opportunities for Wales. The City Deal for Cardiff remains on track and, for Swansea Bay, there is a clearer future for the steel industry. Good progress is being made on key infrastructure projects including rail investment, M4 Relief Road and the Tidal Lagoon in Swansea Bay.
“The challenge now is to deliver on these projects in order to support our successful cities while opening up new opportunities for disadvantaged communities left behind by the economic recovery.”
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