IT was confirmed last week that the Welsh Government has acquired a grade A office scheme from developer JR Smart at its Capital Quarter development.
The agreement ensures that the under construction 80,000 sq ft building in Cardiff will now be ready for occupancy in March.
It will also see JR Smart starting work immediately after completion on an additional 75,000 sq ft office scheme.
The Welsh Government also plans to have contractors on site for a 100,000 sq ft building by year end at land it recently acquired at the Callaghan Square scheme from MEPC.
Opinion in the property sector seems divided on the deal with JR Smart and plans for Callaghan Square, with some seeing no place for the Welsh Government intervening in the marketplace.
However, having been left to the vagaries of the market the only available grade A space currently available in Cardiff is at 3 Assembly Square – which forms part of Aviva’s Cardiff Waterside scheme in the Bay. And with strong interest in the remaining two floors, its marketing agents are confident that it will soon be fully let.
Grade A stock is vital if Cardiff is to attract inward investment to its financial and professional services enterprise zone, as well as indigenous businesses looking to expand – although there are other factors like good transport infrastructure, broadband speeds and the availability of a quality workforce.
The Welsh Government’s deal with JR Smart and its commitment to build at Callaghan Square means that from next spring there will be nearly 260,000 sq ft of new grade A office built or under construction.
It is also hoped that Cardiff-based developer Rightacres will also, subject to planning consent, be adding a further 100,000 sq ft of office space at land it recently acquired off Wood Street near to Cardiff Central railway station.
That would bring into play approaching 400,000 sq ft – which in terms of new build would represent some of the biggest speculative activity outside of London.
Of course in an ideal world all this stock would be provided by the private sector.
However, since the financial crisis, although London remains buoyant, the commercial property sector has experienced one of its toughest ever periods.
Unless you are a developer with deep pockets projects of scale need external finance; with lenders now seeking more capital up front in terms of loan to value ratios.
But Cardiff cannot wait for a sustained recovery before investing in new office stock.
It needs to be coming out of the ground now so is ready to exploit the upturn that will come – which is why the Welsh Government’s intervention is the right call. The Welsh Government is often criticised as being ‘risk averse,’ but clearly here it is not.
Just on indigenous office requirements, from the likes of Morgan Cole, Geldards and Legal and General – and potentially Hugh James with 100,000 sq ft on break clauses on its current office locations in 2018 – there is strong potential uptake for the new developments.
There are also a number of significant job creating inward investment requirements considering Cardiff – which all require grade A office space.
There is always a risk when Government money is used in this way, but we are not talking about the millions wasted on what turned out to be in many cases white elephant technium buildings.
The danger for the Welsh Government is that two years after completion its offices remain relatively empty – and are loss-making when you factor in business rates. If that was the case then its strategy would have failed.
However, I anticipate that most of this new office stock – including the proposed development from Rightacres, can secure significant pre-let deals.
The Welsh Government will then have a rental income stream and with strong convents from tenants be in position to sell the invests in its buildings for a significant return on investment.
This could then be used to support another phase of speculative development in Cardiff, or in other locations in the city region such as Newport and Pontypridd.