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The latest Economic and Property Market Review published by international property adviser GVA Grimley has good news for the economy in Wales, showing that it has grown at a rate higher than the UK average during 2002. The year saw Wales recover from the mild recession it experienced in 2001 when output fell by 0.7%, with growth in 2002 set at a healthy 1.8%, slightly above the UK average.
The report, which offers an analysis of the current economic climate linked to the property market, states that 2003 should see the Welsh economy as a whole grow by 2.1%, higher than 2002, but slightly below the UK average. However, most parts of South Wales are expected to outperform this, with Gwent and Mid Glamorgan both forecast to see growth of 2.5%.
The report indicates that the Welsh office market is holding up well, with
overall rental growth of 1% in 2002 for prime space. The South Wales office market continues to be characterised by a shortage of prime space, notably in the main city centres. However, in common with many regional office markets, South Wales has not suffered from the downturn in sectors such as telecommunications and technology to the same extent as the South East.
"The Cardiff office market has seen a remarkably consistent level of take-up over the last five years, averaging around 55,000 sq m annually," says Steve Gibbon of GVA Grimley in Cardiff. "The market has remained buoyant during 2002, but has not seen the same high level of large lettings that occurred at the tail end of 2001. These resulted in the amount of immediately available new Grade A space decreasing over the last year, continuing the general downward trend in available space that has occurred since the vacancy rate peaked in the mid 1990s.
"The prime city centre rent is now considered to be around £199 psm, up from £188 at the start of 2002. Out-of-town, £151 psm is the top rent achievable," continues Steve.
In Swansea, the office market is characterised by a shortage of new office stock, with occupiers being forced to take secondary space. As a result, the market is now seeing a corresponding reduction in the availability of second-hand space. Demand is being led by the customer services sector, government outsourcing and the public sector. The prime headline rent in the city centre has now achieved £118 psm.
The industrial sector in Wales continues to feel the effects of the disappointing economic performance in the US and Europe, with the level of inward investment in sectors such as electronics falling dramatically. As a result, large units continue to be returned to the market. However, developers have achieved considerable success in dividing these into smaller units, for which there is a healthy level of occupier demand. The industrial sector completes 2002 with rental growth of around 1%, and GVA Grimley forecasts a similar growth rate for 2003.
It is the retail property sector that has seen the strongest prime rental growth throughout the year. The increase for the year as a whole is forecast at a little under 2%, in line with the UK average. There is a high level of developer activity in the sector, with new schemes proposed or under way in Cardiff, Newport and Merthyr Tydfil. In Cardiff, Clinton Cards recently set a new record rent, agreeing £2,745 psm zone A in Queen Street. This supports GVA Grimley's view that, with the appropriate property, £2,745 psm - £2,800 psm could be achieved for zone A.
The overall picture for UK property investment is for healthy returns in comparison with gilts and equities, and demand is therefore strong. This is certainly the case in Wales, where the number of potential purchasers heavily outweighs the number of available opportunities. Returns from prime commercial property in Wales are likely to be just over 9% in 2002, and GVA Grimley forecasts returns of around 10% pa over the next five years in line with the UK average.
Steve Gibbon concludes: "This review is positive news for the commercial property market in Wales, reflected in the economic forecasts for 2003. In particular, Gwent and Mid Glamorgan are predicted to be among the hotspots, experiencing above average growth throughout the year."
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