What's happening in the current market?
Quarter 1 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. In November, consumer price inflation was 3.1%, breaching the 3% threshold above which the Bank of England writes to the Chancellor of the Exchequer to explain why price rises are high. It is clear that this is mainly because of sterlings fall since mid 2015. That effect will probably wane during 2018 but oil prices have been rising which could be another boost to inflation.
Despite all this being said, what is happening in the greater economy is no great suprise and whilst nobody is expecting a boom for the forseeable future, the general view is that it is 'business as usual' and certainly as far as the commercial property market in Bristol is concerned, demand across all sectors remains strong and our general feedback from businesses on the ground is cautious but generally positive.
The completion so far of the office take up statistics for 2017 showing just the first three Quarters office lettings and sales in Bristol and Clifton amounted to 441,011 sq ft (40,986 sq m) with the largest transaction of 31,785 sq ft to the University of Bristol at St Augustines Courtyard. The next largest transaction is 17,400 sq ft (1,338 sq m) being the sale of 40 Berkeley Square to White Oak Capital. This falls some way short of 2016 when the take up figures were massaged by a few larger scale transactions where five major transactions made up c. 314,000 sq ft (29,182 sq m).
It is therefore fair to say that the take up of space in terms of the amount of sq ft is not indicative of the transaction levels which for the 3rd quarter this year increased by 28% on the same period in 2016.
Bristol's out of town office market performed particularly well in the 3rd quarter of this year with take up levels of c. 131,256 sq ft representing an increase of 112% on the same period last year and well above the five year average.
There are a number of deals in the pipeline including the widely reported letting of c.16,800 sq ft of space to Grant Thornton at Glass Wharf and here at Burston Cook we are currently fronting two of the largest active requirements in Bristol City centre at the present time and have recently agreed terms to acquire a new headquarters office in Bristol City centre of c. 40,000 sq ft for a German owned media company and also a new 18,000 sq ft headquarters in BS1 for a US owned company expanding within Bristol central business district.
Back in the 3rd quarter, Mewburn Ellis acquired c.13,326 sq ft at Cubex's Aurora, the Citys only speculative development which broke record rent levels for the rent in excess of £30.00 per sq ft.
The shortage of future space remains a particular challenge for Bristol's city centre market in particular with arguably less than one years Grade A supply of office stock in the pipeline and there are concerns that there will be a severe lack of supply in next two years as a result of which, you would expect rents to continue to rise, however, the risk is that this will deter occupiers looking to expand or relocate within Bristol.
Retail and Leisure
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...
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 citys 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.
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.