JLL's 22nd report on South Wales provided real insight into the drivers for this regional market. For Chinese investors who have only ever been presented with Central London assets, this report is well worth reading. The structural issues of under-supply of A-grade space backed by a macro transportation issues at a time of Brexit makes this an interesting location for Chinese investors to review. This is our interpretation of the findings although the full expurgated version can be found here.

Macro factors

1. Severn Bridge introduces free flowing tolls in 2018: by freeing up congestion, location for logistics operators in Wales is looking increasingly more attractive. Wales is at the end of the M4 corridor that includes some of the largest and most technologically advanced firms in the UK. It comes no surprise then when a Chinese consortium announce a £1bn investment into UK logistics that they would look at this area although at time of writing no investments had been made.

2. Electrification of main Paddington to Cardiff railway by 2018: with the Government showing commitment, albeit delayed, to this infrastructure project, investors should see a long term strategy for South Wales. While not yet extending to Swansea which would benefit the work Swansea University already does with China (nanotechnology and healthcare management being two key areas), assets located near Cardiff will see the main benefits.

3. Brexit will impact EU funding post 2020: even though the Welsh population voted strongly in favour of leaving the EU, the local economy will face a funding gap post 2020 as new sources of capital will be required. This will create localised dips in value that long term investors can take advantage of.

Key Figures

Industrial and Logistics

• yields on key transactions ranged from 5.90% for central Cardiff hotel to 7.34% for a multi-let industrial park.
• total availability fell 5% to c.1m sq m while for units greater than 10,000m, this fell by 32% over the previous year.
• Amazon and Aston Martin were two high profile firms investing into the area in 2016 joining others already located there.

Offices

• Cardiff saw record take up of prime office space (c.68,000 sqm)
• Cardiff rents rose from £2.2psqm to £25psqm. Despite efforts to promote Swansea and Newport as the other main cities in South Wales, investment trends appear to favour Cardiff until rents force smaller firms to relocate.

Residential

• Average house prices were £149,742 compared to £148,177 for the UK average. By comparison, London prices were £473,073. Obviously views on house price appreciation are very important but it shows the disparity between these two markets and could prove attractive to the new wave of Chinese single-unit residential investors.

Summary - worth a look

Along with analysis of markets in the North, Midlands and London, we will be reviewing relative market composition and strength at our China UK Property and Healthcare MarketPlace on 5th May 2017. Chinese investors interest has matured over the past 5 years driven by a combination of local market expertise for more established investors and new-entrants that have created wealth and become members of the entrepreneurial wealthy seeking diversification of assets.