The development of new office buildings in key cities across the South West is urgently needed if the region is to continue to attract investment and jobs from major businesses, according to leading commercial property consultancy Lambert Smith Hampton (LSH).
LSH’s inaugural South West Office Market Report says it is time to see cranes return to the region’s skyline as the lack of supply of good quality office space reaches critical levels.
Peter Musgrove, head of office at LSH in Bristol, said the South West office market had changed dramatically over the last three years as the Government’s relaxation of Permitted Development Rights (PD) has removed a significant amount of obsolete stock from the market.
Buildings in prime locations have been lost for good to the residential and student market, leading to shrinking supply and rent increases. In other regions, such as the South East, PD has led to increasing speculative development, but there is little evidence of new offices being built in the South West.
Peter said: “Bristol’s city centre is the only area to see speculative development, with Cubex’s Aurora due for completion in December 2017 and Castleforge Partners’ comprehensive redevelopment at One Cathedral Square set for completion in summer 2017. The fundamentals driving both developments are increased demand and rents against reducing stock and incentives.
“Bristol’s grade A take-up has averaged 150,000 sq ft a year for the last 15 years, but with less than 120,000 sq ft grade A space available, the market is craving future supply. Given that any schemes starting on site now will take 24 months to complete, what can we expect when these two have left the market?”
Aside from the small amount of development in Bristol, 2016 has seen a lack of speculative build across the South West as a whole. As of Q3 2016, just 95,000 sq ft is under speculative construction across the entire region.
In certain locations, there is room for comprehensive refurbishment to help fill the void, Musgrove added, particularly in markets such as Bath and Cheltenham, where Grade A office space is under supplied and there are constraints on development opportunities.
“Overall, there is a compelling case for development. In prime locations across the South West, rents are rising and yields are remaining strong. Construction costs, lease lengths and higher alternative use values remain the key obstacles to development. However, in centres such as Bristol, Bath, Cheltenham and Exeter, we are now starting to see office values overtaking alternative use values, and tenants are beginning to realise that they need to take longer leases in order to secure the right environment for their business,” Musgrove said.
“Although construction costs remain an issue – and these are likely to continue to rise – the industry nevertheless needs to act, as the demand for development is robust, and the variables for speculative development are conducive.”
