The Bristol city centre office market performed above expectations in Q2, with the highest take-up since 2011, national property consultancy Lambert Smith Hampton (LSH) reports.
In its latest Bristol Office Pulse report, LSH reveals that total take-up of offices of 1,000 sq ft and over in Q2 2016 was 246,392 sq ft, up from 225,555 sq ft during the same period in 2015.
However, it was the city centre that produced the highest Q2 take-up in five years, out-stripping expectations.
Peter Musgrove, head of office agency at LSH Bristol, said although the figures for Q2 were strong, they were distorted by Direct Line’s acquisition of 63,000 sq ft of space at the Core. The insurance giant bought the property for its own occupation for £15.20 million, reflecting an initial yield of 4%, due to the building having only one floor occupied on a short lease at the time of sale.
By contrast, five out-of town offices were sold, the most significant of which was 2000 Aztec West, sold for £19.90 million, reflecting a net initial yield of 6.30%. The building has been let to Everything Everywhere for a further 11 years.
Analysis also shows that take-up in the first half of 2016 is up by 13% on the same period for the previous year.
“The continued increase of take-up means that the yearly take-up so far is now more than 100,000 sq ft ahead of the same six months last year,” said Peter.
“The out-of-town market remains at average levels while the city centre has performed above expectations, which is partly due to the Direct Line deal as it accounted for the city centre’s entire grade A take-up in this quarter.
“There have been also a large number of deals on smaller spaces with the majority taking less than 5,000sq ft, which has put pressure on the supply of small suites.”
There are a number of grade A suites under offer, which are expected to complete early in Q3, but the report shows that the majority of take-up has been within the well-performing grade B market, which is seeing rents increase and landlords investing in refurbishments.
Although prime rents are unchanged, the decreasing supply of Grade A properties should see rents in this market to break the £30 per square feet barrier later this year, said Peter.
Across the South West, Q2 investment in offices totalled £137m, which was 9% less than the previous quarter, while investment as a whole across the region was £407m in Q2 2016, 10% down on the previous quarter but still 28% above the five-year average.
“Improved growth in the economy resulted in positivity amongst occupiers in the early part of the quarter, but we saw a subdued market in the run up to and following the result for the EU referendum, with many firms deciding to wait to hear the result before making any decisions,” said Peter.
“While the decision to leave the EU is yet to have a true impact on the occupier market, we expect to see changes through the next quarter. There is already mention of some requirements being put on hold and it will be interesting to see if this impacts take-up in Q3.
Across the UK, Q2 2016 saw a marked decrease in investment volume in the run-up to the EU referendum, totalling £9.8bn, down 18% from the same period last year.
