DTZ Research’s Offices Property Times report for Q2 2014 has revealed improved sentiment in the Bristol office market.
Occupier sentiment has been strengthening and office take-up in the city centre increased in both Q1 and Q2 2014. In Q2, 180,000 sq ft transacted, which was the highest individual quarter of deals since Q4 2007. Moreover this was made up of a broad range of 40 individual deals.
· Transactions so far in 2014 have been driven by the finance, legal and professional services sectors. Typically these have been following lease events, with an estimated 40% of deals in the last 12 months including expansion.
· EDF is seeking 60-70,000 sq ft of grade A space and considering Bristol city centre, along with other locations along the M4. Activity has otherwise predominantly been on sub-£20 good quality refurbished grade B space. Ovo energy is under offer to take 70,000 sq ft of grade B space. This will be the biggest individual deal in Bristol city centre in six years. This is leading to some grade B rent rises with less flexible lease terms. There is little transactional evidence to draw on for prime rents although they are set to rise from 2015, potentially reaching £30 per sq ft by 2018.
· On the supply side, there are two grade A speculative schemes under way – 2 Glass Wharf is set to deliver 98,000 sq ft by the end of this year, and 66 Queens Street is on target to complete 57,000 sq ft in Q2 2015. KPMG and PWC are likely to pre-let 40,000 sq ft and 25,000 sq ft this year, respectively.
· Investor sentiment in the regional office markets continued to be strong in the first half of 2014. Some prime yields in the regions are expected to tighten in the second half of 2014, but the weight of money continues to push investors up the risk curve. Secondary yields are set to continue falling
· Andy Heath, Director, Office agency at DTZ in Bristol comments: “The steady improvement in trading conditions continues with the highest level of quarterly take-up in the city centre since Q2 2008. What was also encouraging was the number of deals (40 against the 5 year average of 24) which was the highest number since Q4 2007. However, this new found encouragement needs to be tempered by the lack of grade A activity, which does not look like changing hugely over the next two quarters.
“This is highlighted by the fact that we only witnessed 100,000 sq ft of grade A/refurbished grade B take up over the past 12 months and of that 40% of accommodation taken-up has been by occupiers acquiring additional accommodation in their existing building. This indicates that a lot of the grey space within the market has already been absorbed. The story out of town is also encouraging, with a second consecutive quarter take-up of over 100,000 sq ft. This brings the half year total take-up to 219,000 sq ft, already only 32,000 sq ft behind the annual average.”
