Avison Young releases its Big Nine report for Q3

Paul Williams, director at Avison Young

The Bristol city centre office market is looking forward to ending the year comfortably above the ten-year average take-up thanks to what will be the year’s largest Bristol deal at One Assembly to BT. Avison Young has just issued its quarterly review of the office market, The Big Nine, that reinforces the city’s need for a healthy Grade A pipeline if it is to continue to attract major occupiers like BT and compete against the larger UK cities such as Manchester.

In Bristol during Q3, activity has been led by three 10,000 sq ft to 20,000 sq ft transactions to financial services firms Aon, Hargreaves Lansdown and Rowan Dartington, along with a handful of 5,000 sq ft plus deals to technology companies.

Paul Williams, director at Avison Young says, ‘Despite a slow-down in office take-up during Q3 in the city, with a below average total of 184,000 sq ft recorded for the out-of-town and city centre markets, the underlying position is still one of rental growth and a continuing shortage of supply in the Bristol office market.

“Whilst city centre headline rents remained at £35 per sq ft, this has now been exceeded by a letting in Queen Square which sets a new benchmark for the city, and the 200,000 sq ft pre-let of One Assembly to BT is a further significant boost to the office market.

“Although uncertainty remains over the likely outcome of the Brexit process, with strong fundamentals in place the prospects for Bristol into 2020 and beyond remain very positive.”

There has been an increase in the development pipeline activity this summer, improving the prospects for supply. Alongside the speculative 93,000 sq ft Distillery at Glassfields, Nord Developments’ 34,000 sq ft One Portwall Place is also now under construction. These schemes are expected to be followed soon by 110,000 sq ft Halo at Finzels Reach as developers Cubex have received final planning approval. In addition, the final site at 4 Glass Wharf has recently been purchased by Tristan Capital which they have stated that they intend to develop on a speculative basis.

This adds up to exciting prospects for 2020 and into 2021 for the Bristol office market and those looking to relocate.

Paul continues, “In response to flexible working we are seeing some landlords starting to provide a Cat A+ finish and rentalise the fit out and furniture. For example L&G’s 7,000 sq ft The Landing is under offer off a premium asking rent of £38.00 psf.”

The key deal in the out-of-town market was 16,900 sq ft let to facilities management company Mitie at the Chocolate Factory, Keynsham, and there were two circa 10,000 sq ft deals at Bristol Business Park and Aztec West respectively to Stirling Dynamics and Edvance UK Ltd.

The Big Nine report, which covers the nine major regional markets in the UK, shows that there is continued inward investment and relocation deals, boosting take-up nationally during the third quarter.

Total city centre and out-of-town activity during Q3 amounted to 2.1 million sq ft. This was just above the ten year quarterly average, as was take-up for the year to date figure of 6.3 million sq ft. Although this is significantly short of the record levels of the last two years it is at a similar level to the referendum year 2016, the last time the market was affected by political uncertainty.

The second half of the year tends to show stronger activity but Brexit has impacted on occupier decisions this quarter, particularly for small to medium sized deals. There has also been a wide divergence in performance between the regions this quarter, with the largest cities performing well against the ten-year averages.

Despite political uncertainty and occupier caution, headline rents continue to edge up across the UK regions, with Manchester leading the way at £36.50, followed by Bristol and Edinburgh.

However, the reality is all of these locations remain undervalued given overall limited rental growth over the last five years set against high building cost inflation. Over the last 12 months average prime rents have increased by around 3% in both the city centres and out-of-town locations.

Looking forward, long-term strategic demand remains robust as regional markets continue to benefit from substantial public and private sector inward investment, particularly from the government hub programme and the BT hub strategy.