Wales Cautious investment market Peter Graham BSc FRICS DIP Prop Invest

Long income investments of 18-20 years+ and with RPI/CPI rent reviews are still very safe, sought after propositions in most sectors. In the more usual market the retail sector is seeing considerable slippage in capital values and softening yields, with anything other than the best unit shopping seeing around a 50 basis points movement outwards at typically 5.5% to 5.75% and above.. Quality retail parks ,reasonably well let, are seeing a much greater shift in property yield, in many cases by a very significant 150 – 200 basis points, say 6% out to 7.5% and over in Cardiff and other quality cities outside South Wales. Solus units well let to strong covenants have been showing lower yields and higher values. The office sector is holding up better, but with the national market expecting a yield softening in the first quarter of 2019. Recent strong market indicators have included the acquisition of the first Admiral HQ building in Cardiff at 4.25% yield, circa £90m with a lease to 2039, originally acquired in 2013 for circa £58.7m. This is a good advertisement for acquiring regional offices with such an increase in capital value over five years. A more common lease term of 10 years on the additional 77,000sqft Admiral building nearby at Capital Quarter shows a 5.5% yield recently agreed. The Cardiff office investment market has been elevated to a new level and profile with the BBC, HMRC and other high quality buildings being brought forward at Central Square and around Callaghan Square. Industrial property has seen incredibly low yields and high capital values in the south east/M25 areas, with many examples of yields in the 3.5% to 4.5% range on short leases. This has become the ‘new retail’ sector. However, Wales does not show these industrial yields, in fact we lack prime industrial sites close to the motorway so there is very little, if any, evidence of yields sub 6%. Wales and particularly Cardiff has traditionally been attractive to investors because of its large catchment population and predictions of population growth exceeding any other UK provincial cities over the next 20 years, potentially drives a growth in values. Removal of the Severn Bridge tolls is generally a positive factor for south east Wales and a driver for development and investment around Newport. Investors have previously regarded Wales as a poor performer in rental and capital growth terms. Rental growth is certainly not a key factor given weak occupier demand, particularly in retail, as is the case in most UK locations. We are certainly at

the top of the property cycle and hence many investors are likely to decide to sell assets, although the uncertain Brexit times may well put a dampner on achieving sales in the short term. There is a feeling that in the retail warehousing market in particular that, with downward pressure on rents, yields may never return to levels of 5.5% to 6% for quality Cardiff investments, certainly not for a long time, if at all. I have charted property yields in the South Wales investment market since 1991 for all property investment types in each sector and a summary table for Cardiff for well let investments shows (not annuity long income yields):

June quarter 2018 Prime offices Prime unit shopping Business parks Industrial Retail warehousing 5.5% 5.5% 7.5% 6.0% 6.5-7% December quarter 2018

(predicted at time of going to press)

5.5% 5.75% 7.5% 6-6.25% 7.5-8% (not solus units)

IRR requirements of major investors require a hardening of property yield on exist sale and some rental growth, which is difficult to demonstrate. Therefore, IRR’s sought by many investors over a five year cash flow period are 8% to 8.5% ungeared or 12% to 13% geared and these are tough to achieve in this region. Leisure investments are popular, but only where covenant strength is good. We are likely to see a reduction in activity from wealthy local investors with Brexit uncertainty, but major funds and prop co’s are more used to market fluctuations and if the opportunity is right, investment is always going to have some uncertainty and risk however, and this needs to be properly priced in any property decision.

Peter Graham is a partner at Gerald Eve in the National Capital Markets Team.

Cooke & Arkwright aids Greggs in its ambitious growth strategy

Cooke & Arkwright has helped Greggs bolster its presence in Wales during 2018 by sourcing and securing nine new units, collectively creating over 100 new jobs. During 2018, the bakery giant has opened nine new premises in Wales and the Marches which include Belmont Road in Hereford, New Road in Neath Abbey, the former Little Chef in Newtown, a store on Stephens Way in Carmarthen, a prominent roadside unit on the A470 in Builth Wells, a unit in Cardiff City Centre within the new BBC Building in the landmark Central Square development and three new units in the Newport area, being on Cardiff Rd, Caerleon Rd, and to the east of the City on the Langland Park West industrial estate.

Across the nine new premises, over 100 jobs have been created. All stores underwent a new shopfit costing, in total, over £1.8 million. In addition to these new sites, Cooke & Arkwright currently has terms agreed for the acquisition of 15 other new Greggs outlets in various locations across Wales, all set to open during this year and in 2020. As part of its ongoing work with Greggs,


which has spanned over 25 years, Cooke & Arkwright’s responsibilities have included identifying and sourcing new locations and agreeing new lease terms, assisting with the business rates on the portfolio and renewing expired leases.

With over 150 outlets in Wales, Greggs is focusing its continuing growth strategy on opening stores between 800-1,500 sq ft in areas which include shopping centres, business parks, out-of-town retail parks, industrial estates, transport hubs and prominent roadside locations. In 2018, Greggs announced that its half- year revenues and pre-tax profits had increased, with the bakery turning over £476.3m, up from £452.9m in the first half of 2017. Reported pre-tax profit, which includes property profits and exceptional charges, was £24.1m, up from £19.4m.

Huw Thomas, director at Cooke & Arkwright, said:

“Greggs has been a long-standing client of ours and we have supported them in opening their outlets in Wales.


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