Market snapshot

Bristol Office Market Pulse Q4 2015

Despite expectations of a buoyant Q4, the Bristol office market experienced slow take up in the final three months of 2015.  However, an increase in enquiries during Q4 leads us to expect that 2016 will be an active year.

A lack of supply across all grades has lead to an imbalance of demand over supply, with landlords pushing rents and reducing incentives.  The scarcity of grade A space leads us to believe that rents will push through the £30.00psf barrier this year, which would bring Bristol in line with other regional centres such as Birmingham and Manchester.

Permitted Developments Rights (PDR) has had a huge impact on the Bristol market, with 1.2 million sq ft taken out of the commercial sector for conversion to residential.  Occupiers are faced with a limited choice of available space and this has lead to many tenants remaining in their existing premises or putting requirements on hold for the early part of the year. Rumours of new developments and refurbished space being brought to the market led to rise in the number of enquiries in the second half of 2015.  So far, these requirements have moved slowly, although we expect many of them to progress in early 2016.

In this issue:

Enquiries holding steady

• There were 45 new office enquiries in Q4 2015, compared with 47 in Q3 2015

• We have continued to see an increased number of requirements from occupiers for offices below the 5,000sq ft limit, who are often looking for lower grade space

• The stable level of requirements demonstrates increased confidence from occupiers who are now considering their options within the market; we expect take-up in the first quarter of 2016 to be positive.

Fall in take-up in line with expectations

• Q4 2015 take-up for offices (over 1,000 sq ft) was 188,312sq ft, compared with 492,884sq ft in Q4 2014

• Total take up in Q4 2015 was down by 62% on the same period for the previous year

While Bristol’s out of town office market has remained similar to that of Q4 2014, and is in line with the five year average, city centre take-up has fallen dramatically in contrast with Q4 2014. 

However, this was to be expected as the final quarter last year saw an unprecedented level of large occupational deals.  These included the letting of 69,000sq ft of space at One Rivergate to OVO Energy; 52,000 sq ft at 66 Queen Square to KPMG and 46,590sq ft of space at One Victoria Street to Mapfre. 

In the city centre, Grade A stock made up over a fifth of take-up (21%) with the remainder consisting of lower grade options.  Lack of Grade A stock means that occupiers are limited to a finite number of buildings, and it is unlikely that Grade A take-up will increase until further stock is developed.

Supply total continues to dwindle

• The total office supply in the Greater Bristol market at the end of Q4 2015 stands at 1.3m sq ft.  This equates to just two years’ worth.

• The lack of available stock has resulted in a hardening of incentives, and landlords have continued to push their rents.  Whilst we expected prime rents to increase by the end of 2015, they remained stable at £28.50psf throughout the year, largely due to a lack of Grade A deals.  However, we anticipate that rents will exceed £30.00psf in 2016.

• While there were no new office developments in Q4 2015, we do expect to see at least one scheme start construction in 2016.  Planning consent has been granted for Aurora, a new 90,000sq ft building on the Finzels Reach scheme and there have also been rumours that Aspire, a 200,000sq ft building, will be developed speculatively on Victoria Street.

• Many landlords of lower grade offices have decided to refurb their space in the past 12 months to capture higher rents. This has improved the quality of available stock but we are still seeing a lack of Grade A which can only be resolved through new builds. 

• With PDR set to continue and recent changes allowing properties to be demolished and rebuilt, we anticipate a rise in interest in the out of town market.  Schemes in secondary locations like Almondsbury, for instance, would suit conversion and we predict that developers will see opportunities here.

Significant occupational transactions

Property  Size (sq ft)  Tenant  Rent /price psf Lease  Landlord
Penthouse, 3rd and 4th Floors, One Redcliffe St 27,135 TLT Solicitors Confidential Confidential Scottish Widows 
1st Floor, 2 Glass Wharf 16,796  Arcadis £28.50 10 year lease with 5 year break  Salmon Harvester
Building A, Vertex Park 36,000 ALD Automotive £18.25 15 years  Stoford
Building A, St James Court, Almondsbury 20,071 SW Ambulance Service £15.00 15 years  London and Scottish 

Buoyant office investment activity in final quarter

South West investment across all sectors totaled £300m in Q4 2015.  This took the 2015 volume to £1.6bn – a 6% increase on 2014 and 28% greater than the five year average. The Q4 volume was in line with the previous quarter. The volume of sales of office investments in the south west in Q4 2015 was, however, 25% down on the previous quarter.

• Investment into South West offices totaled £61.5m for the quarter, bringing 2015 volume to £550m – a 120% increase on 2014 and 119% greater than the five year average

• The largest deal of the quarter was Long Harbour’s purchase of  St Catherines Place, Bristol for £30m, reflecting a yield of sub 5.5%

• The largest deal of the year was St James's Place’s acquisition of 10 Templeback, Bristol for £59m

Bristol remains a popular target for a number of funds and property companies as a result of the strength of the occupational market.

However, the general consensus is that after the strong yield compression in 2015, levels may now have plateaued.  A number of funds are currently reviewing their strategies for this year and are cautious about pursuing new acquisitions until these have been completed.  The continued volatility of the UK and global stock markets is likely to impact on yields in the first quarter of 2016 as funds come under pressure to maintain their weightings.

We anticipate that the volume of transactions in Q1 2016 will be slower than in 2015 but that activity is likely to increase from Q2 onwards.

Demand for office investments in the south west has become more concentrated on Bristol as investors become cautious towards the smaller West Country towns and cities that have seen lesser rental performance over the past 12 months.  Yields this year are therefore likely to move out slightly for offices in those areas, with the exception of Bath.

Key investment deals

There were only four office transactions in Bristol city centre in Q4 2015:

• St Catherine’s Court, Clifton, developed in 2009, was sold in December 2015 by the developers, Ashfield Land, to Kames Capital.  The price was subject to a confidentiality clause but we understand the price paid reflected a yield of sub 5.5%.  Tenants included GVA and Saffery Champness.

• Resolution Property acquired The Pithay, Bristol for £18m.  The building is to be refurbished into Grade A offices.

• 90 Victoria Street which was built in 1997 and provides 24,377 sq ft of offices was purchased by Ardstone UK ROF from Loxton Developments.  Mazars occupied the top floor but the remainder of the building was vacant.  The price paid was not revealed.

• 40 Queen Square, a multi-let building, was bought by AEW from DTZ IM for £7.20 million reflecting a yield of 8.70%.

• The only out of town transaction reported in Q4 2015 was the sale of 135 Aztec West. The building of 13,048 sq ft was let to Davies and Partners until 2020.  The rent was topped up by the vendors to £175,000. The property was sold for £2.068 million, reflecting a yield of 8%.

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0117 914 2013

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Peter Musgrove
Director - Head of Office - Bristol

0117 914 2013

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