What's happening in the current market?
Quarter 2 2018
The UK economy can chalk up 2017 as a decent, if unspectacular, 12 months. Growth will likely be slower this year compared to last, but not by much. The trouble is some signs of weakening are appearing, most importantly on the jobs front, after what has been a lengthy period of economic expansion, however, in our opinion, this comes as no surprise as we become increasingly entrenched in Brexit negotiations and the uncertainty that this creates.
UK manufacturing production fell 0.2 % between February and March, the first decline in a year, although activity levels are still elevated and taking the pulse of wider global growth and its near term outlook (both good), suggests this is a wobble for the UK rather than a renewed slide. The sector is still performing well compared to the recent past with output up 2.5 % y / y.
Halifax reported that average house prices were up 2.7 % y / y, slightly lower than the 3.8 % rise this time last year. Prices in the capital are falling, however, so far most of the rest of the country has resisted following London’s lead.
So all in all, it is shaping up to be a sluggish start to the year with estimates that the UK economy grew by 0.2 % in Q1 compared to 0.4 % in the final Quarter of 2017. There have been signs of a slow down (c 5 %) in the construction sector which was impacted greatly by weather conditions in Q1 and possibly a relatively lacklustre performance by services. Is this enough to steer the Bank of England’s rate setters away from rising interest rates in May?
2017 was an excellent year for the Bristol office market with over one million sq ft taken up yet again of which, some 425,000 sq ft was out of town and some 614,000 sq ft was city centre.
The out of town take up represented a massive 26 % above the 5 year average.
In the city centre, Grade A rents have increased by 14 % in 2017 to £32.50 per sq ft. Grade B rents had already witnessed large uplifts in the last few years and edged up to £27.50 per sq ft.
Major city centre deals included lettings to Dyson and the University of Bristol taking 56,000 sq ft between them at One Cathedral Square setting the new prime rent and Simmons & Simmons committing to a pre let of 27,000 sq ft at Aurora. The University of Bristol acquired the most space in Bristol city centre in 2017 in three separate transactions.
Take up figures out of town for 2017 were boosted by Babcock signing up to 86,000 sq ft at 100 Bristol Business Park.
The first Quarters take up statistics have been released with the largest office deal handled by Burston Cook, which is the acquisition of Eagle House on behalf of Immediate Media, amounting to circa 38,000 sq ft accounting for a significant percentage of the first Quarters city centre take up, which amounted to a total of circa 125,000 sq ft of which Burston Cook were responsible for over 40 % of the take up.
The out of town office take up in the first Quarter amounted to 31,833 sq ft of which Burston Cook were responsible for over 36 % of the transactions that took place.
Retail and Leisure
Bristol’s historic St Michaels Church on St Michaels Hill which suffered significant fire damage, will become a multifunction space for all types of events and as part of the restoration, a new museum will be created in the crypt of this ancient Grade II style Listed building.
We at Burston Cook are advising the purchaser, Ian Johnson, an events and online publishing entrepreneur based in Clifton and is behind the recent restoration of the Clifton Observatory. We will keep you progress via our website blog.
The second phase of work on the redevelopment of the Colston Hall concert venue in Bristol has moved closer with counsellors voting to back the £49 million scheme. Proposals include a new main hall, replacing the existing Festival of Britain auditorium and internal alterations will be made to enable the Lantern Room to be used as a performance hall whilst the upper and lower cellars will be converted in a 3rd performing space. There will be a number of external changes to the period Byzantine facade to enable the creation of a new restaurant and whilst there are some concerns at the harm to the architectural interest of the building, it is viewed that this should be outweighed by the benefits of the proposed refurbishment and redevelopment... Watch this space
On a larger scale,the proposed 12,000 capacity indoor arena at Bristol Temple Meads Railway Station which was due to open in 2020 has hit a stumbling block. In January 2017, the projected opening of the arena was delayed until 2020 after Bristol City Council and preferred construction firm Bouygues UK failed to agree on construction costs. A few months later is was announced that Buckingham Group, who had initially been the second preferred bidder would carry out preliminary work on the site whilst negotiating a final price. Bristol City Council have now commissoned an independant review into the projects value for money...
We are noticing that retailers are feeling the pinch as a result of increased costs due to the national minimum wage and the new national living wage alongside business rates costs increasing following last years revaluation. Furthermore, many retailers with a weak online offering are in some cases struggling and it has certainly not escaped the news where major retailers such as Toys R Us, Maplin, New Look, Claires Accessories and Conviviality have been hit since the beginning of the year.
A3 users such as Jamie’s Italian, Prezzo, Strada and Byron Burger are reducing their number of outlets where in some cases the A3 market has been saturated.
However, here in Bristol and on the ground operater demand for restaurants and bars throughout the city remains healthy and we have been involved in a number of recent such transactions including the letting in Clare St to Franco Manca, the letting of 21/23 Clare St to London based restaurant chain, Honest Burger, the letting of a unit in St Stephen Street to Burger Theory and other lettings we have handled to Bubbleology at 53 Queens Road, Costa at 30 College Green, Pasta Ripiena in St Stephen Street and Burger Bear on Gloucester Road to name a few.
Demand for well placed retail units throughout the city also remains healthy with full occupancy in Clifton Village at the present time with recent lettings to Cameron Lee Carpets, Silver Squid Boutique and the former Natwest on the corner of the Mall and Princess Victoria Street which is currently under offer to clients of Burston Cook for a traditional upmarket retail use which will greatly enhance this important corner at the heart of Clifton Village.
Demand for good non-prime retail space in central Bristol remains strong including Queens Road, Park Street, St Stephen Street, Baldwin Street, Corn Street, the Docks and along Cheltenham Road up to Gloucester Road, locations where Burston Cook are particularly active. There also remains good demand for well positioned units in established suburban retails parade throughout the city.
The city's principle shopping centres of Cribbs Causeway and Cabot Circus continue to perform well with a degree of occupany turnover to be expected, however, both remain popular principle shopping centres with steady demand. Quakers Friars 'the square' within Cabot Circus which has been home to Carluccio's and Brasserie Blanc for some years has recently attracted Cote Brasserie and L'Osteria, with the square now being fully occupied with a central 'al fresco' piazza creating what is now an established and very attractive dining destination.
The industrial property market throughout Bristol and the surrounding areas remains buoyant and active with a shortage in supply within certain sectors and good occupier demand.
Supply in general terms in Bristol remains low and is reportedly at its lowest level for over 10 years with demand increasingly focused on better specified space off all sizes, freehold opportunities accross all sectors and smaller business units of up to 2,000 sq ft, especially if available to purchase.
With an improving number of medium sized requirements, occupiers are increasingly only able to satisfy their needs via the design and build route.
New space is strictly limited and we anticipate rental levels of circa £8.50 per sq ft (£91.50 per sq m) could now be achieved for accommodation below 20,000 sq ft (929 sq m). Rents for modern and mid ranged buildings remain at around £6.50 per sq ft (£70 per sq m) and good quality second hand buildings are commanding rents of around £5.50 - £6.00 per sq ft (£59.20 per sq m - £64.57 per sq m).
We have recently sold two freehold industrial units at Riverside Business Park St Phillips within just a few weeks from commencement of marketing.
In the summer we were instructed to market to let 8 units at Netham Park in St Phillips for which terms were agreed on 7 units within 12 weeks, which again is indicative of the strong demand for unit sizes of up 2,000 sq ft.
We have recently been instructed to market 4 interlinking units at East Park Trading Estate in central Bristol totalling c. 32,000 sq ft upon which we are already in negotiaitons with interested parties and we are just about to commence marketing for sale a 20,000 sq ft unit on a site of c. 1 acre at Central Trading Estate, Whitchurch for which we anticipate there will be strong demand.
Demand for property investment across all sectors in and around Bristol remains strong with a distinct shortage in supply.
At the upper end of the office investment market, Tower Wharf was purchased by Picton at a price of £23.15 million, reflecting a net initial yield of 3.6% which is expected to grow to 7.5% on leasing the vacant space within the building. The property totals 70,664 sq ft with an average unexpired lease term of 5.2 years. This transaction alone shows the confidence both in the office lettings market and Bristol as a city to invest within.
Another prime city centre office investment, One Cathedral Square was offered for sale this year at a price of £30 million reflecting a net initial yield of 5.56%. Also 10 Canons Way on Bristol's Harbourside was sold this year to South Korean investors for £95.5 million.
Barley House in Clifton came to the market at the end of February and generated strong demand.
The property, totalling circa 14,500 sq ft was let to Bristol University for another 6 years and terms have been agreed at sub 5 % net initial yield.
Demand from property companies and private investors remains robust and in recent months, Burston Cook have secured a number of investment transactions across the sectors including a mixed retail/ residential sale on Whiteladies Road, Clifton at a price of c.£2 million, the sale of an industrial investment at Lodge Causeway at a price of c.£1 million, a sale of a residential HMO in Clifton at a price of c.£1.2 million, the purchase of Arclight House, a mixed office and leisure investment in Unity Street at a price of c.£850,000, to name but a few.
The problem facing investment agents in Bristol is that of supply and therefore stock to sell, however, we have recently received instructions to sell 4 mixed use investments, ranging from c. £750,000 - £1 million and we anticipate receiving instructions to dispose of a prime city centre office investment of c.£14 million later in 2018.
In conclusion, whilst some institutional investors have adopted a more cautious approach, there remains healthy demand for institutional investments which remain few and far between. Demand remains strong from local, national and international property companies and private investors for non institutional investments across all sectors.