High quality refurbished space plays important role for Bristol office occupiers as Grade A supply still limited

Paul Williams, Director of Office Agency at GVA in Bristol.

Real estate adviser GVA has released its Big Nine quarterly review of the UK’s office markets. It shows that 2018 was a record year of take-up across the nine cities studied in the report, amounting to 10.7million sq ft, compared to the previous year of 10.1million sq ft.

This national trend was reflected in the Bristol office market, where take-up of 932,000 sq ft was 8% above the ten-year average for the city.

Most of the activity in the city was seen in the education sector, led by the University of the West of England taking 77,600 sq ft at Stoke Gifford early in the year.

During the final quarter of 2018, there was approximately 100,000 sq ft of activity in both the Bristol city centre and out-of-town markets, with the largest deals out-of-town featuring in the Big Nine’s top five, namely 32,000 sq ft to HM Government at Aztec West, and 19,600 sq ft to SCHQ at Bristol North Baths, Gloucester Road.

In the centre of Bristol, Grade A supply continues to be very limited.

There is light on the horizon however, with construction recently starting on the speculative 200,000 sq ft Assembly building at Temple Quarter, whilst at Glassfields on the opposite side of Temple Way, The Distillery is also on site comprising 93,000 sq ft over nine floors. Neither building is however scheduled to complete until 2020, meaning that the shortage of new Grade A space will continue for at least the next 12 months. Both sites are situated within the Temple Quarter Enterprise Zone which may have helped the developers’ decision to push the button and start construction without a pre-let in place.

More immediately, 70,000 sq ft of high-quality refurbished space in a prime harbourside location is being brought to the market by GVA at 2 Trinity Quay, which will be one of the largest opportunities to hit the Bristol market this year.

Director of Office Agency at GVA in Bristol, Paul Williams, says, “For a number of years, the city centre office market in Bristol has been hampered by a lack of stock, due to the large number of buildings which have been converted to alternative uses such as residential or student accommodation.

“This has driven rents upwards and made it much more difficult for occupiers to find the space they need to accommodate business growth and has also hindered the ability of the city to attract inward investment.

“We have however now seen the pendulum swing back, as landlords have an incentive to refurbish their buildings to meet the needs of today’s office occupiers, in the knowledge that they can benefit from levels of pent-up demand and increased rental levels to offset the often significant costs of investing in their buildings to bring them up to standard.

“As such we are particularly excited to be marketing the space in 2 Trinity Quay, which is attracting positive interest even before it has been formally launched onto the market. This underpins our view that such refurbishment opportunities will continue to play a significant role in meeting the needs of office occupiers, and allowing the Bristol economy to thrive.”

Looking at the national picture, both city centre and out-of-town activity was 30% up on the long-term average, with the out-of-town market reaching annual take-up of 4 million sq ft for the first time.

Co-working and serviced offices continue to show strong demand, with Regus, and ten other operators, active in the market.

The Big Nine report highlights that build cost inflation and future economic uncertainty are continuing to restrict new development, even though current grade A availability, consisting of brand new stock and second hand Grade A is at a record low, currently standing at just over 1 million sq ft across all nine cities (down from 1.6 million sq ft 12 months ago).

Paul concludes, “The lack of prime stock continues to impact on headline rents which now average £30.33 psf across the Big Nine cities. With an average rent-free period of 20 months on a ten year term this equates to a net effective rent of £26.03 psf, a 30% increase over five years. Headline rents in Bristol stand at £35psf in the city centre, £22.50 out-of-town, and the city centre market is expected to see further rental growth during the course of the year.”