BRISTOL OFFICES MARKET
Andy Heath, Director, Office agency at DTZ in Bristol comments:
“2014 has so far been a seminal year for the Bristol city centre office market, where after 6 years of depressed conditions, we have seen a substantial uplift in activity. Take-up for the first three quarters has been 435,000 sq ft, the highest since 2008. We have also seen the largest transaction in the city centre since 2008 with Ovo Energy’s 70,000 sq ft acquisition of One Rivergate in Q4. With a substantial level of take-up expected in Q4, it will be the highest level of take- up for many years.
The most notable sea change has been the increased levels of grade A activity. In Q1-Q3 there has been 41,000 sq ft but in Q4 we have already seen PWC commit to 40,000 sq ft at Two Glass Wharf, KPMG are under offer on 45,000 sq ft at 66 Queen Square which could exchange an agreement for lease before the year end and another 17,000 sq ft of grade A deals under offer which could make a yearend total of 145,000 sq ft of grade A take-up which would be the highest since 2008.
The natural effect of this movement and also the increased levels of grade B take-up has been the isolated instances of rental growth and the considerable reduction on incentives. PWC set a new Bristol record rent of £28psf at Two Glass Wharf and it’s strongly believed KPMG will be paying circa £29psf at 66 Queen Square. But it’s not just grade A stock, Bull Wharf a refurbished grade B building has seen rents grow from £15.50psf to £19psf over the past 18 months. At the start of 2014 incentives were 18 months on 5 year terms and now they are 12 months. We would expect this to drop to 9 months in the first half of 2015.
2015 will see further grade A take-up, most notable of existing grade A stock that has been available for some time. The challenge is then which developers are brave enough to start further speculative development to meet the growing demand of occupiers nationwide who are beginning to fully appreciate the demographic, infrastructure and attraction of the greater Bristol area.”
SOUTH WEST INDUSTRIAL MARKET
Phil Cranstone, Associate Director in DTZ’s industrial agency team in Bristol comments:
“The Bristol industrial market has witnessed a very promising 2014, with the take-up of existing available stock continuing to the extent that the balance of power has begun to shift in favour of the landlord. The first half of the 2014 saw the highest first half year take-up since 2005 in the four local authority districts forming Greater Bristol, with over 1.5 million sq ft of space taken (according to the Industrial Agents Society Western Branch take-up statistics). This figure was of course dominated by the two key deals of the year, Farm Foods’ acquisition of 16 acres of land with a development agreement for the construction of an initial 175,000 sq ft, and The Range leasing 385,000 sq ft of second hand space at Cribbs Causeway. A number of other deals propped up the take-up figures over the course of 2014, including significant lettings to Davies Turner, WH Malcolm, and AP Burt, together with strong activity in the multi-let sector and smaller end of the market. Market incentives have reduced over the course of the year having the impact of an increase in net effective rents, whilst in some prime locations competitive situations have begun to arise between occupiers, with some evidence of rental uplifts in such cases.
Take-up for 2014 as a whole is expected to be in line with the 5 year average exceeding 2 million sq ft again, with the second half of the year not expected to be as strong as the first half mainly due to the reduction in existing stock levels that have been witnessed. Occupiers have had to alter their expectations and consider design and build opportunities, and whilst many are now doing so, this may take a while to come through into actual take-up.
Speculative development has yet to hit Bristol or indeed the South West to the extent that it has in other regions of the UK, most notably London, the South East and West Midlands. However, small speculative schemes have begun to spring up in a few locations, with those brave enough to do so achieving some success. Some activity is expected in 2015 in prime locations, however, the level of speculative activity predicted is not expected to keep pace with the reduction in existing available stock, and the challenge for 2015 will be identifying sufficient, well located sites which will give developers and funders the confidence to build speculatively, and satisfy the occupier demand in the prime locations. This may yet mean the successful first half year take-up this year, will be difficult to repeat in the corresponding period of 2015, with hopes pinned on the conclusion of deals to large existing parcel distribution and retailer requirements.”
SOUTH WEST INVESTMENT MARKET
Nick Allan, Senior Investment Director at DTZ in Bristol comments:
“The investment market has seen a significant hardening of yields over the past year almost across all sectors, locations and grade of property. This has encouraged more vendors to consider sales during the final quarter of the year with a wall of money still chasing property as an investment grade asset class.
The improvement has been fuelled by a number of factors including the rarity and pricing of yields in London and South East, the general improvement in the economy and the accelerated improvement in the regional occupational market with the possible except of the high street. These factors have encouraged investors to be more positive in their assumptions for occupier demand, letting, rental growth and improved lease terms.
We anticipate pricing to remain strong into the New Year, however there are some notes of caution around the wider global economic challenges that have recently emerged in Europe and further afield, the pricing of other asset classes, as well as a cautious approach heading towards the General Election in May 2015.”
