What's happening in the current market?
Quarter 3 2018
Bank of England govenor Mark Carney's latest speech was upbeat about the UK Economy, increasing the likelihood of an August rate hike. He downplayed a disappointing Q1 GDP, highlighting the adverse impact of poor weather on the construction sector rather than the economic climate. He cited improving consumer spending and sentiment in Q2 whilst warning of an oil driven rise in headline inflation near term.
June's encouraging UK services PMI survey bodes well for a pickup in GDP. Not only did the headline index jump to an 8 month high, but new orders rose healthily aided by a weather related pickup in consumer demand. The manufacturing sector wasn't quite as upbeat being unchanged at 54.4 and remains down from the levels seen late last year, with new business fairly subdued. Continued strength in the global economy will be the saviour here.
UK construction rebounded in Q2, the headline index moved up to 53.1 in June from 52.5 in May, above market expectations. Notably, new orders jumped to their highest level since November 2017 and employment prospects improved. However, input costs are rising, led by steel prices, threatening profit margins. Historically speaking, this sector is volatile, so it is premature to draw any strong conclusions.
Blame the World Cup, the hot weather or even the 'boogie', but the Euro area broke up early for Summer this year. Both unemployment and retail sales were unchanged in May. The unemployment rate was 8.4 % down from 9.2 % in May 2017, the lowest since 2008.
So in general, things are looking rosier than earlier in the year although, with increased uncertainty within the UK Government and ongoing Brexit negotiations which are coming to a head, surely this will keep any risk to a minimum of substantial interest rates increases going forward which even with the recent increase remains at a historically low level. We are likely to experience an interesting few months ahead in terms of how we approach ongoing Brexit negotiations.
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.
Take up statistics for Q1 and Q2 2018 have been released with the largest city centre 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.
The largest developer purchase in Bristol city centre so far this year was also handled by Burston Cook, being the commercial element of Electricity House in Colston Avenue, amounting to circa 13,000 sq ft.
We are pleased to report that the first two quarters city centre take up for 2018 are on a par with the first two quarters of 2017 with Burston Cook being involved in some 24 % of these transactions based on sq ft.
The out of town office take up in the first quarter amounted to 31,833 sq ft with a giant leap in Q2, showing a take up out of town of 139,000 sq ft. Due to the HP3 and HP4 Stoke Gifford deal amounting to nearly 80,000 sq ft.
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!
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 updated of progress via our website blog.
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 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 commissioned an independent 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, operator 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 the most recent transactions being the acquisition of the former Natwest on the corner of The Mall and Princess Victoria Street by Titcombe Bespoke which is currently being fitted out to accommodate the John Titcombe Jewellers expansion into what will prove to be a high end jewellery showroom which will greatly enhance the prominent corner site (Burston Cook represented Titcombe Bespoke). Next door and fronting onto Princess Victoria Street, Burston Cook have recently acquired this unit freehold for Hydes Estate Agents, which will be completing their refurbishment for their relocation to this prominent freehold site during Autumn 2018. We are currently marketing their existing premises at 1 West Mall and in discussion with a number of potential occupiers.
Waterstones are now happily settled into their new Clifton Village premises at 37 Regent Street and all this bodes very well for the continued prosperity of Clifton Village retail centre.
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 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 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.
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 during Q1 and generated strong demand. The property, totalling circa 14,500 sq ft was let to Bristol University for another 6 years and terms were reported to have been agreed at sub 5 % net initial yield although subsequently to fall through and the property has now been withdrawn.
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.