Market snapshot

Bristol Office Market Pulse Q3 2017

Office take-up for the Greater Bristol market outstripped expectations in Q3 2017. Take-up totalled 307,478 sq ft, an increase of 55% on the same period last year and a 33% increase on the 5 year average for this period.

In Bristol city centre, take-up reached 173,022 sq ft, which is the strongest quarter this year and nearly a third more than Q3 2016. The out of town market also performed well with activity levels of 134,456 sq ft – an increase of 112% on the same period last year.

We saw a return of larger deals in Q3, with six transactions in excess of 10,000 sq ft taking place, the largest of which was the letting of 16,871 sq ft to Grant Thornton at Salmon Harvester’s 2 Glass Wharf. 


In this issue:

New enquiry levels remain steady

  • There were 52 new office enquiries in Q3 2017 
  • Half of these are for offices in excess of 5,000 sq ft but with supply levels being further reduced, the question has to be asked as to where these occupiers will go.
We have seen several deals, which had been known to be in solicitors’ hands for some time, cross the line this quarter. This has created a domino effect - once one occupier committed to take space, we saw others make decisions quickly. 

Q3 also saw the completion and launch of Castleforge’s One Cathedral Square, which has brought 58,000sq ft of fully refurbished grade A space to the Bristol market. The space has been very well received and with several interested parties already, we expect the building to be fully let before the end of the year. 


Take-up is ahead of average and record rents have been broken

  • Total take-up of offices (over 1,000 sq ft) in Q3 2017 was 307,478 sq ft, a 33% increase on the 5 year average of 228,534 sq ft. 
  • Both markets have exceeded the levels of take-up seen for the same period last year.

There were a total of 28 deals done in the city centre market in Q3, with an average deal size of 5,944 sq ft which is in line with the 10 year average. 

Perhaps the most anticipated deal this quarter was Mewburn Ellis’ acquisition of 13,326 sq ft at Cubex’s Aurora. This is the city’s only speculative development at the moment and we expect to see most, if not all of the building, let before practical completion in Q2 2018. Not only was Mewburn Ellis’ acquisition the first deal at Aurora and the only pre-let this quarter, it also broke record rent levels with a rent in excess of £30.00psf.  

The out of town market exceeded all expectation with a take-up of 134,456 sq ft, and again, like the city centre, it saw an increase in larger deals - in particular, at St Monica Trust’s The Chocolate Factory in Keynsham which saw the letting of 29,783 sq ft to a unnamed occupier, and Pukka Herbs’ acquisition of 17,222 sq ft. 

Bristol's out of town market has been impacted by the sale of 230,000 sq ft of offices at Park View Office Campus, Whitchurch Lane, which is to be converted for residential use. Out of town has not been impacted by permitted development as much as the city centre, which has seen over 2,000,000 sq ft converted to alternative use. However, this sale is expected to trigger others that will see poor quality stock being taken out of the market and converted to alternative uses.

Significant occupational transactions

Property
 
Size (sq ft)

Landlord

Tenant

Rent (per sq ft)

Lease (years)
 
2 Glass Wharf 16,871
Salmon Harvester
Grant Thornton
£29.50 
10 years with 5 year break
Aurora
13,326
Mewburn Ellis
Cubex
£31.00
15 year lease with 10 year break
2 Glass Wharf 8,965
Salmon Harvester
PWC £29.50 15 year lease with 10 year break
The Chocolate Factory 29,783
St Monica Trust Unnamed 
Confidential Confidential
The Chocolate Factory  17,222
St Monica Trust
Pukka Herbs
£19.50
10 year lease with 5 year break

Why aren't developers building?

The construction of 95,000 sq ft of Grade A office space at Cubex’s Aurora, as part of the wider Finzel’s Reach scheme, remains the only speculative development in the Greater Bristol market. 

Castleforge’s One Cathedral Square, which has recently been refurbished, is expected to be fully let before the end of this year. 

Works at Resolution Property’s Programme are now well underway with phase one due to complete later this year and phase two in 2018. The building will provide 110,000 sq ft of space to the TMT sector which remains popular in the city centre with many new start-ups choosing Bristol. 

With less than one year’s grade A supply in the pipeline and nothing new under construction there are concerns that there will be a severe lack of supply in the next 2 – 3 years. 



Bristol in firm favour with investors

Bristol saw over £100m of office assets change hands during Q3 2017.  This included four sizeable deals: 66 Queens Square (£30m), 1 St Georges Square (£26m), Tower Wharf (£23.2m) and The Prudential Buildings (c£21.5m). By comparison, Bristol’s largest and only deal over £15m in H1 2017 was AEW’s £17.5m purchase of Colston Tower. 

The summer spike of activity confirms that a lack of product, rather than weak demand, was the main reason for the underpar volume seen in H1 2017. 

With stability having returned to the investment market and an ongoing weight of money seeking income, there is little risk that prime yields will drift. The region’s markets also offer relative value and low passing rents compared with other sectors, especially some of its smaller markets, which bodes well for activity moving forward. We have already seen a tranche of stock come to the market during the autumn – including AEW’s Freshford House, quoting £8.46m - 7.5% and, with demand remaining healthy, total volume for Bristol in 2017 is set to be one of its strongest on record.

Despite Brexit uncertainty, there is growing evidence that investors are becoming more confident to invest in secondary product. Bristol provides one of the UK’s most tightly supplied office markets and, with rental growth expected to continue, stock offering opportunity for repositioning may offer the best return prospects. Differentiated multi-let product, designed to attract smaller non-corporate occupiers could reap the most reward. However, getting the location right is paramount, and a detailed knowledge of the local market will be essential.

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Peter Musgrove

0117 914 2013

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Peter Musgrove
Director - Head of Office - Bristol

0117 914 2013

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