Two of the three largest commercial property office investment deals in the UK took place in Bristol during the second quarter of the year, according to research from property consultancy Knight Frank.
The off-market purchase of Templeback by Orchard Street Investment Management in June 2015 for £58.5m, reflecting a net initial yield of 5.34% was the UK’s largest in the period, and Aviva Investors’ acquisition of 66 Queen Square for £32.7m, at a net initial yield of 4.94%, was third largest.
The purchase of the Spectrum, Bristol in June by Maddox Property Partners from West Register for £14.1 million at a net initial yield of 4.18% was also in the country’s Top 10 deals during the April to June period.
Steve Oades, head of Knight Frank’s capital markets team in Bristol, which acquired 66 Queen Square on behalf of Aviva Investors Property Trust, said: “Prime multi-let assets are in high demand from both UK and overseas investors, particularly those buildings located in major regional cities where Grade A supply is tight, there are good transport links and there is little anticipated landlord capital expenditure in the short to medium term.
“The lack of buying opportunities combined with the weight of money looking to invest in the regions has resulted in yield compression for ‘best in class’ assets across the UK”.
In the office leasing sector, following on from the exceptional take up of 2014, the Bristol office market continued its recovery, with demand levels at a healthy level.
Q2 2015 take-up of 159,839 sq ft was above the 10 year quarterly average and – with the exception of 2014 – the highest on record since Q1 2010. The total amount of office space taken during the first six months of the year was 266,003 sq ft, 10% down on the same period last year, largely due to uncertainty in the markets prior to the general election.
Take-up of Grade A space accounted for 18 per cent of the total in the first half of 2015.
Martin Booth, partner in Knight Frank’s Bristol offices agency team, said: “The current healthy level of enquiries indicates that take up in H1 will be replicated in the second half of the year.
“This ongoing squeeze on availability means that several city centre land owners are currently working up or have submitted planning applications for a range of new build schemes with probable speculative starts in early 2016.
“However, it is the shortage of immediately deliverable sites that means there remains a focus on refurbishment schemes – deliverable within much shorter timescales. AEW at Freshford House, Standard Life at Narrow Quay House and Loxton Developments at 90 Victoria Street are likely to reap the rewards as the supply of new and high quality space diminishes.”
He added: “At the end of June this year, total availability stood at 1.05m sq ft. The availability of accommodation is being eroded across all qualities of space. This trend will continue through 2015 and 2016. There are no on-going new developments and there is continued removal of office space for alternative uses, predominantly residential and student accommodation.”
Looking ahead, he expected to see rental growth later in the year with prime headline rents moving up from £28.50 per sq ft to £29.50 per sq ft by the end of 2015, driven by supply shortages.