Experts at DTZ in Bristol review the 2013 commercial property market and look ahead to 2014.
BRISTOL OFFICE MARKET
‘Developers are becoming more optimistic’ – Andy Heath, Director in DTZ’s Office agency comments:
“Total city centre office take-up for the year so far stood at 427,673 sq ft but this was dominated by two deals, the council’s freehold acquisition of 100 Temple Street and Imperial Tobacco’s completion of their own development which totalled 150,000 sq ft. To put into context, the annual total take-up for 2012 was 406,592 sq ft. The three and five year averages are 426,000 sq ft and 439,000 sq ft respectively. Assuming Q4 take-up totals approximately 100,000 sq ft (three and five year quarterly average) the annual total will be 527,000 sq ft.
“Grade A take-up so far this year totals 69,663 sq ft which by far exceeds the total Grade A take-up of 2012 at 36,000 sq ft. The largest Grade A deal was to Veale Wasborough Vizards (VWV) who completed an agreement to lease on 39,000 sq ft at Narrow Quay House.
“Demand continues to be sporadic but the trend of the last 18 months continues with the most active sectors being TMT (Technology, Media and Telecommunications) for smaller deals and financial services for larger deals. Three of the ‘Big 4’ accountancy firms also have active requirements in Bristol city centre.
“Developers are seemingly more optimistic and there are more speculative schemes in progress than at any point over the past six years. 1 Victoria Street (47,000 sq ft) is due to complete in early 2014, and 66 Queen Square (60,000 sq ft) and 2 Glass Wharf (98,500 sq ft) are expected to complete in Q2 2015. It is likely that the development of this new accommodation will create a two tier Grade A market between these new buildings and those that have been blighted by substantial voids since the peak of the market.
“Looking ahead to 2014, city centre headline rents are likely to remain stable at £27.50 per sq ft. Incentives continue to remain above the five year average although there are signs that the balance of power is slowly starting to shift back into the hands of landlord.”
INDUSTRIAL MARKET
VALUATION
‘A mixed year for the commercial property market’ – Robert Parr-Head, DTZ Director, Valuation comments:
“2013 has proved to be another mixed year in the commercial property market, with prime property continuing to perform well. There was a marked improvement in the performance of secondary assets, although tertiary continued to struggle. Overall, the market has improved over the last 12 months; investors and lenders are more confident and we are now seeing asset management initiatives reflecting in investor pricing, particularly on secondary stock. Over the last 12 months, as occupier demand has begun to stabalise, voids have been perceived in certain situations in a more positive light and as an opportunity to improve the overall income profile of an investment.
“Of the three principal sectors of the commercial property market, retail continues to have negative annual rental growth, although over recent months this has been trending upwards, driven by an improvement in shopping centres. The lack of available good quality stock in the Industrial and Office sectors has helped to maintain rental levels. Indeed, there is now evidence that incentive packages offered by landlords in the form of rent free periods are reducing. As confidence in the letting market grows, so developers are beginning to return to speculative development. There are currently three speculative developments in central Bristol, totalling approximately 18,023 sq m (194,000 sq ft).
“Banks continue to take positive strides in dealing with their legacy loan books. There is increased activity in the lending market with several of the main banks showing a greater appetite to lend on prime and good secondary assets in the South West. There now seems an acceptance by borrowers that loan to value ratios for well secured investments are unlikely to exceed 65%. Increased competition within the lending market has encouraged the banks to reduce margins and fees.
“We predict a narrowing in the yield spread between prime and secondary assets due to a sustained improvement in economic growth and changes in the perception of secondary assets and investor’s level of risk aversion.
“If the economy continues to improve at the same pace there is the distinct possibility of interest rate hikes as soon as Q4 2014 with expectation that rates will continue to move higher in 2015. As an example, Topland acquired Riverside Chambers, Taunton, in January this year for £3.6 million, showing a net initial yield of 21.3%. The property is a 5,861 sq m (63,095 sq ft) office development in central Taunton, built in 1991, let to The Secretary of State for the Environment under two leases, both expiring in March 2016. Topland now have the asset under offer for £5 million, showing a profit of around £1.2 million, after purchaser`s costs.”
