What's happening in the current market?
As spring approaches, we can report that the UK Economy almost came to a halt in Q4 last year as mounting Brexit concerns took its toll on business investment, however, consumer spending maintains its gradual recovery, driven by higher real incomes. Growth for 2018 was just 1.4 %, the weakest annual growth since 2009 mirroring weaknesses across European Economies.
On a surprisingly positive note, during the 12 months to January, consumer prices increased by 1.8 %, the lowest level in 2 years with wages growing 3.3 % yoy.
UK house price growth moderated to 2.5 % in the year to December, its weakest since 2013 and general reports indicate this slow down will continue into 2019 pending Brexit.
So that’s the general Economy but what’s happening in the commercial property market in Bristol?:-
2018 was another solid year for the Bristol office market with close to 1m sq ft of take up. After a very poor start, the out of town market bounced back to surpass the 5 year average by almost 20 % and see rents marginally rise to £22.50 psf. The continuation of a lack of supply in the city centre had an even greater impact this year, but has assisted in pushing the prime rent to over £35 per sq ft. With a lack of new development in 2019, it will be the refurbished buildings that are likely to satisfy much of the demand.
Take up in Bristol city in 2018, totalled 527,000 sq ft with the largest office deal being handled by Burston Cook in acquiring Eagle House on Colston Avenue for Immediate Media which is under full refurbishment to house their new Bristol HQ, which will total circa 37,500 sq ft (3,485 sq m). The smaller sized office market for up to 5,000 sq ft has remained very buoyant with Burston Cook continuing to lead the way as Bristol’s most Active Commercial Property Agent in this sector.
Retail and Leisure
As the UK's 5th largest retailer, Marks and Spencer is undergoing a tumultuous period in its fashion and general merchandise arms, with food remaining the groups star performer. The news that M & S will close over 100 stores by 2022 as part of a radical restructuring plan should not really come as any great surprise and although such decisions are difficult and make headlines, this can only be seen as a good business, recognising weakness due to changing market conditions and acting upon them to ensure future growth and success.
It is clear that such changes in the high street are not only predictable but inevitable as retailing trends change and businesses must address such changes.
The news that Mike Ashley has purchased House of Fraser and is planning to keep 47 of 59 stores open is positive news given the previous owners planned to close 31 stores. The plan is to negotiate better rentals with existing landlords, incorporate Sports Direct and Flannels into larger stores and introduce 'cool brands' of the moment. Watch this space!
Patisserie Valerie is being bought out of administration in a deal that will hopefuly save nearly 2000 jobs. The management team at the coffee and cake chain has secured backing to take over 96 shops.
One of Bristol's biggest city centre eyesores will be transformed into a new 4* hotel at the junction of Nelson Street and Broad Street. The former Natwest offices have been taken over by Dalata Hotel Group and is reported that the property which totals approximately 120,000 sq ft will be the subject of a planning application expected to be submitted later in 2018 for 250 air conditioned bedrooms to be completed late 2020 / early 2021.
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 third 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 about 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 November 2018, plans were revealed to scrap the Bristol Temple Meads Arena and to construct the Arena within the Brabazon Hangar at the former Filton Airfield on the edge of the city. In September 2018, the Arena plans for Temple Meads were scrapped altogether in favour for a mixed use development on the site leading the Brabazon Hangar as the only option to accommodate the Arena, although as to whether this will happen, is unlikely!
On the ground here in Bristol, outside of Cabot and Cribbs, operator demand for restaurants and bars together with retail demand remains healthy and as one of the most Active Agents in this sector, Burston Cook have been involved in a number of recent such transactions including Pizza Rova at the bottom of Park Street, Oowee Vegan Diner on Baldwin Street, Two Bellies Beer and Wine shop on Whiteladies Road and the most recent letting of the former HSBC unit on College Green to Cowbee Coffee and Ice Cream parlour - all via Burston Cook...
Demand for well placed retail units throughout the city also remains healthy with high occupancy in Clifton Village at the present time following recent transactions in the village including the letting of the former Natwest to Titcombe Bespoke, the letting of 4 Princess Victoria Street to Hydes Estate Agents and both of their former units currently under offer via Burston Cook.
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 retail parades throughout the city.
The city's principle shopping centres of Cribbs Causeway and Cabot Circus continue to perform well with a degree of occupancy turnover to be expected, however, both remain popular principle shopping centres with steady demand. Quakers Friars 'the Square' within Cabot Circus was fully occupied during 2018 for the first time since construction, having attracted Cote Brasserie and L'Osteria alongside Brasserie Blanc and Carluccios, however, sadly, Carluccios have now closed their doors on the Square, hopefuly to be replaced before long to complete this popular dining piazza.
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 of all sizes, freehold opportunities across 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 negotiations 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.
Barley House in Clifton came to the market during Q1 2018 and generated strong demand only to fall through prior to exchange. The property totalling circa 14,500 sq ft is let to Bristol University for another 5 years and the sale was relaunched to the market in February this year. This property is now under offer at a price in excess of £4m to a south east property company.
Another property investment, St James Court in Bristol city centre was launched to the market in October 2018 and a sale was agreed at just sub £10m only to fall through prior to Christmas. The property has been relaunched February 2019 and is likely to go under offer shortly at a yield anticipated to be in the region of 6.5 %.
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 to note, One Cathedral Square was sold at a price of £30 million reflecting a net initial yield of 5.56%. Also 10 Canons Way on Bristol's Harbourside was sold last year to South Korean investors for £95.5 million.
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.