Office rents in Bristol could push through the £30 per sq ft barrier during 2016, thanks to a lack of grade A space, the latest office report by national property consultancy Lambert Smith Hampton (LSH) reveals today.
While rents remained stable throughout 2015 at about £28.50 per sq ft, the expected rise this year will bring it in to line with other regional centres such as Birmingham and Manchester.
LSH’s Q4 Office Pulse report shows that despite expectations of a buoyant Q4, the Bristol office market experienced slow take-up in the final three months of 2015, but an increase in enquiries during that three-month period suggests that 2016 will be an active year.
“Permitted Developments Rights has had a huge impact on the Bristol market, with 1.2 million sq ft already taken out of the commercial sector for conversion to residential,” said Peter Musgrove, LSH Bristol’s head of office.
“Occupiers are faced with a limited choice of available space and this has led to many tenants remaining in their existing premises or putting requirements on hold for the early part of the year However, rumours of new developments and refurbished space being brought to the market led to rise in the number of enquiries in the second half of 2015.
According to the report, there were 45 new office enquiries in Q4 2015, compared with 47 in Q3 2015, and there has also been a rise in occupiers looking for offices – often for lower grade space – less than 5,000 sq ft. Over Q4 there was a fall in take-up of offices over 1,000 sq ft – 188,312 sq ft compared with 492,884 sq ft in Q4 2014 – and total take-up in Q4 2015 was down 62% on the same period the previous year.
This was in line with expectations, said Peter, because the final quarter of 2014 saw an unprecedented level of large occupational deals, which included the letting of 69,000sq ft of space at One Rivergate to OVO Energy; 52,000 sq ft at 66 Queen Square to KPMG and 46,590sq ft of space at One Victoria Street to Mapfre.
Grade A stock made up 21% of take-up in the city centre; the remainder consisted of lower grade options, much of which was refurbished by landlords to attract higher rents.
The report also reveals that by the end of Q4 2015 there was just two years’ worth of total office supply – 1.3m sq ft – in the Greater Bristol market.
The construction of at least one new office development is expected to begin this year following the granting of planning permission for Aurora, a 90,000sq ft building on the Finzels Reach scheme. There are also rumours that Aspire, a 200,000sq ft building, will be developed speculatively on Victoria Street.
The Office Pulse report also reveals that Q4 2015 saw buoyant investment activity in the South West, with £300 million across all sectors – a 6% increase on Q4 and 28% higher than the five-year average.
Office investments in the region for the quarter totalled £61.5 million, down 25% down on the previous quarter, however, 2015 volume stood at £550 million – a 120% increase in 2014 and 119% above the five-year average.
“While Bristol remains a popular target for a number of funds and property companies as a result of the strength of the occupational market, the general consensus is that after the strong yield compression in 2015, levels may now have plateaued,” said Peter.
“A number of funds are currently reviewing their strategies for this year and are cautious about pursuing new acquisitions until these have been completed. The continued volatility of the UK and global stock markets is likely to impact on yields in the first quarter of 2016 as funds come under pressure to maintain their weightings.”