Market snapshot

Bristol Office Market Pulse Q1 2016

The Bristol office market has seen strong take-up in the first quarter of 2016. Several enquiries received towards the end of last year have now either taken space or are under offer, and EDF has signed its lease for 81,000 sq ft of space within Bridgewater House. Frazer Nash has also acquired the last suites at Narrow Quay House.

We continue to see a lack of available stock across all grades.  However, improving market conditions have provided landlords with increased confidence which has led to the refurbishment of numerous properties across the city centre.  There are also two new grade A buildings now under construction in the city centre which will provide circa 300,000 sq ft of space.

In this issue:

Enquiries in Q1 up on 2015

  • There were 53 new office enquiries in Q1 2016 – more than any quarter last year
  • Enquiries have been spread across the board in terms of size and quality of space

The increased number of enquiries indicates that many firms have entered the New Year with a positive outlook and are planning for the future. Improved growth in the economy has resulted in more occupiers deciding to expand or improve their existing office space, and we expect a significant number of these to take space in the coming months. 

Robust take-up in Q1 compared with other quarters

  • Total take-up of offices (over 1,000 sq ft) in Q1 2016 was 270,674 sq ft, compared with just 173,529 sq ft during the same period in 2015
  • Total take-up in Q1 2016 was up by 36% on the same period for the previous year
While Bristol’s out of town office market has remained broadly similar to that of Q1 2015 and is in line with the five year average, city centre take-up has almost doubled when compared to the same period last year. This is largely due to the letting of the majority of space at Bridgewater House to EDF, following its continued work at Hinckley Point C.

In the city centre market, a hefty 63% of take-up in Q1 2016 was made up of grade A space;  again, this is largely attributable to the EDF deal but it does suggest that occupier confidence has improved. The large take-up of grade A stock has continued to put pressure on occupiers looking within this sector of the market and has further limited their choices to a finite number of buildings.

Supply profile set to improve

The first quarter of 2016 saw two new schemes coming out of the ground and we expect both of these to be ready by Q3 2017. The first, Aurora, is a new 95,000 sq ft building being constructed as part of the wider Finzels Reach scheme, and works started on site early this year.  The second scheme is CEG’s Aspire on Victoria Street, which is expected to provide circa 200,000 sq ft of grade A space.  Both of these schemes are being developed on a speculative basis and this firmly indicates an improved confidence amongst developers.
The standard of available Grade B office stock is improving as many landlords have decided to reap the rewards from refurbishing their buildings.  In most cases, landlords have realised that an ever tightening supply chain means that tenants have a limited choice when deciding to move and if they choose to refurbish their space then they can maximise their returns.
Prime rents still haven’t managed to get past the £28.50 psf that was achieved in 2015. This is partly due to the EDF deal having been agreed almost 12 months ago.  The continued lack of grade A supply has allowed landlords to push their quoting rents, with many now quoting £32.50psf, and we expect to break the £30.00 psf barrier this year.
The effects of Permitted Development Rights are now starting to plateau in the city centre with the majority of poor quality buildings ripe for development having already been taken out of the market for conversion. This has left the market with a much improved quality of stock for occupiers and landlords alike.  The out of town market continues to be largely unaffected by PDR but there are several secondary locations, such as schemes in Almondsbury, which would suit conversion and we predict that developers will see opportunities there.

Significant occupational transactions

Property Size (sq ft)  Landlord  Occupier  Lease Length  Rent (per sq ft) 

Ground, 1st, 2nd and 3rd Floors, Bridgewater House

81,202 Undisclosed EDF Energy 15 years  £27.50
3rd and 4th Floors, Narrow Quay House 27,703 Standard Life Frazer Nash Consultancy 15 years with a break in year 10  £27.50
4th and 5th Floors, 31 Great George St 15,500 Hermes Real Estate Management Jones Lang Lasalle Undisclosed Undisclosed 
155 Aztec West 20,356 COIF Charities Property Fund  Hoare Lea  15 year lease with a break in year 11   £19.00

Q1 sees surge in office investment activity

  • South West investment as a whole totaled £452m in Q1 2016, which was 52% up on the previous quarter and 44% above the five-year average.
  • Investment into South West offices totaled £269.5m for the quarter which was 1% less than Q1 2015 (at £272 million).
  • Across the UK, Q1 2016 saw a marked decrease in investment volume.  At £10bn it was down 41% from Q4 2015 (£17.1bn).  From the same period last year it was down 57.8%.
  • Q1 2016 UK investment was also below the quarterly long term average of £11.4bn (from Q1 2007).

In spite of the SW’s strong performance in Q1 compared with the UK market, we anticipate that Q2 and Q3 will be considerably quieter as a direct result of the Brexit referendum in June.

This can be attributed in part to the volume of properties being brought to market, which has significantly reduced since the referendum was announced. Equally, the majority of pension funds have chosen to either hold back until after the 24th June or are only buying very selectively.

This mirrors the impact of the Scottish independence referendum in September 2014 when the Scottish property investment market almost ground to a halt due to uncertainty around the economic impact of the vote and took some months to recover.

The lowest yield seen in Bristol in Q1 2016 was for the sale of 2 College Square, set within the popular Harbourside development.  The building was sold by M&G Real Estate to CBREi Global Investors for £22.775 million, reflecting a yield of 4.97%.

Bristol continues to remain popular with funds, property companies and an increasing number of overseas investors who have been attracted by the relatively high yields offered in comparison with those in London.  The City’s strong occupational market and lack of Grade A and even Grade B space has further improved the attraction of Bristol to investors.

We therefore anticipate that, whilst volumes are likely to slow in the next two quarters, yields for Bristol offices should remain at a consistent level through this period, irrespective of the Brexit result.

In the short term, this uncertainty is more likely to impact on the smaller West Country cities and towns, with the exception of Bath where demand remains strong and opportunities to buy are rare.  We do not foresee a significant fall in values but a downward movement in yields of around half a percent.

Key investment deals

  • Bridgewater House in Bristol was sold by Palmer Capital to a private overseas investor.  The building of 115,000 sq ft was multi-let to Barclays, BDO and EDF off rents between £26.75 and £27.50 per square foot. The sale price of £56 million reflected a yield of 5.35%.
  • 2 Temple Back East, an 87,500 sq ft building let in its entirety to Osborne Clarke Solicitors until 2022, was sold by DEKA Immobilien to Ardstone UK ROF.  The sale price of £34.10 million reflected a net initial yield of 5.83%.
  • Castlemead was sold by F&C Reit to Oval Real Estate for £22.30 million reflecting a net initial yield of 7.70%.  The building provides 137,000 sq ft of offices over 18 floors.  The WAULT (weighted average unexpired lease term) was less than 4 years and just over 3.5 years to breaks.
The only significant out of town office investment transaction in Bristol was the sale of Keypoint in Almondsbury Business Park.  The building of 64,000 sq ft was fully refurbished prior to being let to TSB Bank by way of a 15 year lease from November 2014.  It was sold by CBREi to an overseas investor for £16.75 million, reflecting a net initial yield of 5.70%.

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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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