Hodge House, Cardiff
Hodge House, Cardiff
Following several years of above trend performance, Covid-19 containment measures have restricted occupier activity in Cardiff and subsequently lowered leasing volumes. The year had begun brightly, with take-up of 64,364 sq. ft. registered in the first quarter. Q1 activity was focused out of town, with six deals outside the Central Business District (CBD) accounting for 70% of take-up during the quarter. The largest letting was to Target Group at Eastern Business Park, St Mellons, where the financial services advisor committed to a 12,300 sq. ft. refurbished suite.
Take-Up and Availability (sq ft)
Source: Knight Frank
Number 1 John St
Availability has remained relatively stable in 2020 with Q3 Grade A supply at 191,651 sq. ft. and a city wide vacancy rate of 9%. Tenant release space has had a limited effect in 2020 as occupiers have continued to evaluate their occupational requirements but this is expected to increase as businesses implement future real estate strategy. Significant developments currently on site include the Interchange at Central Square pre-let to Legal & General, the 107,000 sq. ft. first phase of John Street at Callaghan Square being speculatively developed by JR Smart and the refurbishment of Fidelity’s 1 Fusion Point providing 65,000 sq. ft. over 3 floors.
As government restrictions took hold in the second quarter, activity reduced markedly as occupiers began to comprehend an enforced work from home policy. Starling Bank’s expansion at Brunel House was the largest deal recorded in a move that will see the firm double their footprint in Cardiff. Starling Bank took a five-year lease of the refurbished eighth floor (14,075 sq. ft.) joining the new Clockwise flexible office offering in the building.
The first signs of businesses looking beyond the Covid-19 crisis were evident in Q3. Enquiry levels improved and tenants began to formulate their strategy for reoccupation, transition from 100% work from home and plan for future property needs. Legal & General, as Landlord, have had success following their comprehensive refurbishment of Hodge House where Intelligent Ultrasound (7,188 sq. ft.) committed to two suites including the pre-fitted Capsule space along with Currency Cloud another new entrant to Cardiff that took to a new 10-year new lease of 6,587 sq. ft.
There were 15 office deals in Cardiff in Q3 double the count from Q2. Take-up showed a moderate improvement with 42,718 sq. ft. leased as the wider economic challenges caused by Covid-19 continued to affect the office sector. To contextualise, total take-up for 2020 (Q1-Q3) has reached 138,213 sq. ft., a sharp reduction when compared to 287,009 sq. ft. at the same point in 2019.
Prime Office Rents (£ per sq ft)
Source: Knight Frank
Nonetheless, with September registering an upturn in the level of enquiries, an increase of large corporates making decisions on their real estate strategy over the coming months is expected. The largely successful enforced work from home period is increasingly not considered as a wholesale replacement to the office, but more of a temporary fix and potential component of a more flexible approach to future working. It is clear that for most tenants, the office will remain as a focal point to meet, train, collaborate and innovate.
One corporate that has taken a decision on their strategy for the future is financial services giant Legal & General who, as a tenant, committed in October 2020 to consolidate its two Cardiff offices and bring 1,800 staff under one roof at Central Square. The company will occupy 120,000 sq. ft. of office space in the £140 million Interchange building that is currently under construction and due to be completed in November 2022. Interchange is the latest phase of the £450m regeneration scheme by Rightacres in partnership with Legal & General which, in addition to office space, will include 318 build to rent units and the new bus station reinstated as Cardiff’s Central Transport Hub.
Whilst the pandemic is continuing to have an effect on the overall performance of the office markets across the UK, the commitment of occupiers such as Starling Bank, Intelligent Ultrasound and Currency Cloud offer encouragement in Cardiff. These demonstrate both the opinion of the market on the future role of the office, as well as highlight how Cardiff continues to build a diverse and resilient occupier base. Despite very challenging conditions in 2020, forecasts indicate that take-up activity will rebound in 2021.
The fundamentals of the Cardiff market remain balanced with a well-defined core, limited supply of Grade A space, controlled development pipeline and a competitive rental profile when compared to competing UK regional cities. Post-Covid, the high quality of living on offer in Cardiff, the vibrant mixed-used city centre environment and excellent connectivity will be of heightened importance in attracting businesses and staff back into the city centre.