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'Perfect storm’ creates brighter outlook for Bristol offices says Peter Musgrove of LSH

wantspacegotspace.co.uk - 'Perfect storm’ creates brighter outlook for Bristol offices says Peter Musgrove of LSHThe outlook for the Bristol offices market is improving as a ‘perfect storm’ looks set to create an imbalance of supply and demand that could lead to the return of pre-let activity, according to LSH.
Peter Musgrove, director of office agency at LSH, said the city centre market is poised to benefit as confidence returns to the business sector thanks to the improving economy and other key factors increasing interest in available office space.
“With the end of 2013 in sight and a return to the cold weather after a great summer it is a good time to reflect on the Bristol office market.  Anyone outside the market looking in may be forgiven for seeing little to warm their hearts,” said Peter, as LSH published its Bristol Office Market Pulse Q3 report.

" Although city centre take up in Q3 is up on the last four years, this is obviously skewed by Bristol City Council's freehold purchase of 70,973 sq ft at 100 Temple Street and Imperial Tobacco's redevelopment of 85,000 sq ft on Winterstoke Road, both of which are abnormal deals. Without these, take-up looks less bright with little sign of improvement from the suppressed market seen over the last four years.  

“However, in forecasting markets as with forecasting the weather, looking back can only take you so far. The outlook for the Bristol City Centre office market is bolstered by a number of factors,” he added.
They include:

1. The Permitted Development Rights scheme of allowing old redundant buildings to be converted into residential has proved popular in Bristol and a number of buildings such as 33 Colston Avenue and more recently Lewin’s Place come off the availability list.  This is set to continue.

2. With development funding remaining difficult and the market not supporting pre-lets there continues to be a lack of new office buildings coming to the market.  The substantial refurbishment of One Victoria street will offer a new product to the market but any development will have a time lag. Therefore, in the next 15 months no new product will come to the market thereby decreasing supply.  

3. The next 18 to 30 months will see a large number of lease events occurring. Companies over the last few years put back their lease events. However, with increased confidence in the economy and therefore their business, they are starting to make decisions about the medium to long-term future.  Companies such as PWC and KPMG are already in the market and others are set to follow.

Peter added: “An increase in economic activity will lead to more requirements coming to the market. This will be coupled with reduced drag as the over supply of poor stock is removed and no newly developed product replaces it. We are seeing a "perfect storm" appear on Bristol’s horizon creating an imbalance in supply and demand. As a result, we should see the return of the pre-let in the next 18 months.

"We are not predicting returns to the 07/08 take-up levels, or even those in 06, but looking back we may see 2013 as the calm before the storm and things really start to get interesting again.”
Key highlights of the Bristol Office Market Pulse include:

City centre drives rise in office take-up

•       Combined city centre and out of town office take-up in the three quarters of 2013 was 18% up on the same period last year, at 603,368 sq ft.

•       Activity in the third quarter alone was 188,177 sq ft, the highest third quarter take-up for 6 years.

•       City centre take-up was the highest since 2008, with Veale Wasbrough Vizards 39,000 sq ft letting at Narrow Quay House and Barclays 18,759 sq ft letting at Bridgewater House boosting city centre take up-to 138,187 sq ft.

•       Out of town, take-up reached 49,990 in the third quarter which is up on 2012.

Conversions of second hand office buildings into residential reduces supply

•       Total availability in the Bristol city centre office market reduced by 30% in Q3 2013, and now sits at just over a 1m sq ft. The majority is in the second hand market.

•       Supply in the second hand market reduced the most, with recent development purchases of office buildings to be converted into residential. An example is 106,000 sq ft at Lewin's Place.

Strong out of town locations stabilise overall falling rents

•       Out of town, prime rents have remained at £19.50 in Q3 2013; however there have been no large out of town deals since Q1. The majority of rents in the out of town market have been falling.
•       Prime city centre rents held steady at £27.50 per sq ft.

Investment strength in the regions

•       Q3 saw some key investment sales for the city with sub 7% yields being agreed out of town, which have achieved higher quoting levels than expected. 

•       Kames Capital purchased Embassy House, Clifton from Rockspring for £7.5m (8.96%); multi-let retail with 43,242 sq ft offices. 

•       Redcliff Quay was been purchased by L&G for a confidential price from Standard Life.  Quoting level was £24m (8.27%) for the 108,000 sq ft multi-let.

•       Dakota House Building, Bristol Business Park sold for £10.5m (8.2%) and let to Thales for 20 years.  A private purchaser paid £1m above quoting level.

Park Gate, 2000 Aztec West has exchanged at sub 7% off a quoting level of 7.5%. Of that 68,000 sq ft office space has been let to EE for a 14 year term.

Posted by The Editor (wantspacegotspace) on 19th November 2013

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