Take up for the first six months of 2018 looks like a close rerun of H1 2017, according to the latest Bristol office market review compiled by Morton Property Consultants:
Some 267,984 sq ft were let in the city centre – precisely three square feet less than in the first half of 2017. The number of deals was also closely aligned: 51 against 46 in 2017. The fact that the statistics are very much in line with the five-year average demonstrates just how steady the Bristol market currently is.
But “steady” does not necessarily equate with “boring” and there is plenty of interesting detail behind the headline figures.
Critically, we are now heading into record rent territory, with the ground floor at Aurora (Developer: Cubex Land) under offer at £34 psf – a hike of £1.50 psf over the figure set in 2017, and a clear demonstration that there is strong demand for the sparse amount of Grade A space available.
Just 15,500 sq ft remains available at Aurora which is the only existing Grade A space within the city centre and makes the decision of Royal London Asset Management to push ahead with The Distillery, at Glassfields very welcome.
The Distillery will bring forward 93,097 sq ft across three buildings, with practical completion in 2020. RLAM are cleverly targeting smaller requirements with a mix of suites between 4,000 and 8,000 sq ft, having identified strong demand in this zone. Most importantly, they will be looking to offer shorter, more flexible lease terms than many landlords, so plugging the gap for grow-on space in the city.
Second hand space sparkles
2017 saw tenants happy to pay rents close to Grade A for quality refurbished space, and there is new product coming through to meet that demand too – notably a remodelled Temple Point where 49,824 sq ft has recently come on stream.
The available space in the city centre currently accounts for less than 5% of the total stock, helping to explain the strength of the second-hand market and the very narrow differential between new and second-hand space.
Two of the highlight deals in H1 were at Tower Wharf – both at £28.50 psf – with 10,719 sq ft on the fourth floor going to Integreon, while McCann have moved into 8,382 sq ft on the 5th floor.
Meanwhile, part of the second floor of Hartwell House was let to Barnett Waddingham at £30 psf – a tad down on the 2017 high water mark for refurbished space (£32.50 at Cathedral Square) but another indication of the strength of the market, as is the fact that rent-free periods have moved in by around two months being circa 1.2 months per year of term taken.
Also noteworthy was one of the biggest lettings of the first half: 30,184 sq ft at 1 Victoria Street to Runway East who took at sub lease from Mapfre to offer serviced co-working space. This highlights the rising demand for smaller amounts of flexible space on short leases – not just from smaller businesses and start-ups, but also to meet the need of larger corporates who are taking smaller amounts of ‘core’ space and then topping it up with ‘flexi’ project space.
PDR (Permitted Development Rights), which has taken out a large swathe of older offices over the last few years, has now probably run its course for a while as office values are outstripping residential.
North Bristol picks up pace
Meanwhile, North Bristol saw a sizeable rise in take up over the equivalent period of 2017, moving up from 148,773 sq ft to 170,833 sq ft– in no small measure driven by demand from the University of the West of England.
Rents rose in response to demand, with the £22.50 psf agreed by Agility Logistics and Keepmoat for 140 Aztec West marking a new record for Bristol’s out of town market – although there remains a large differential in rents between here and the city centre.
This mark could be moved further in H2 2018 following the major refurbishment of Aztec West 800 where 73,197 sq ft is coming on stream this summer with rents expected to be around £24 psf.
Looking forward…
A number of requirements remain in place for the city centre, including Hewlett Packard, Jardine Lloyd Thompson and Ashfords, while Bristol is still waiting to hear whether it has been selected as a hub city for Channel 4, a positive decision on that could spark another wave of businesses basing themselves here.
With a big requirement for EDF still waiting to be met, H2 18 could prove another good half for North Bristol.
With supply and demand so tightly balanced, city centre rents are only likely to keep moving upwards. At £34 psf, Bristol is now rapidly closing in on Manchester’s prime rents – currently £35.
This should encourage both developers and institutional funders to get behind the next instalment of developments.
Who will take the decision to start developing more speculative space? The expectations are that AXA/Bell Hammer’s Assembly Bristol will be the next out of the traps – one of three waterfront buildings, with the first one likely to be the 193,000 sq ft Building A.
Cubex Land, funded by Palmer Capital, not only completed on the Fire Station site, where they are looking to provide 100,000 sq ft of offices and PRS but also gained consent to build The Generator Building in the highly successful Finzel’s Reach project. This would release 30,661 sq ft of contemporary, character space – targeting the tech, creative and media sectors that are making a lot of the pace in the city.
