Investor sentiment remains strong in the UK office regional markets, as total transaction volumes reached £2.3 billion in 2015, the highest since 2006, according to research from Cushman & Wakefield.
The financial crisis saw many regional cities, including Bristol, left with an oversupply of office floor space, tough credit conditions and fragile investor confidence, causing a drop off in development activity. However, as the recovery has taken hold, most regional cities have now been left with acute low levels of availability.
Grade A office availability is particularly low with just over a year’s supply remaining and the development pipeline remains relatively limited. As a result, rents in Bristol are expected to increase by 19% to £34 per sq ft by 2019. Secondary rents are also on the rise and, at £25.00 per sq ft, are starting to close the gap to prime rents in the city.
Grade A quality of space will be provided in the short-medium term with refurbishments completing/on site such as Freshford House (AEW) and Cathedral Square (Mercer). Speculative schemes will complete after these with Cubex’s / Palmer Capital scheme at Aurora, Finzel’s Reach the first to start on site in summer 2016.
Office take-up in the second half of 2015 was slow in Bristol at 197,000 sq ft. Demand focused on smaller sized units, with a number of creative sector businesses looking beyond serviced office accommodation. The market is optimistic that demand will improve in 2016, with an upturn in take-up of larger units such as Foot Anstey but undersupply in the city remains a major issue.
Key investment transactions in the second half of 2015 included Resolution Property’s acquisition of The Pithay (All Saints Court), the sale of St Catherine’s Court to Kames Capital and CBRE Global Investors’ disposal of Key Point. Again, the anticipation of rental growth has led to an increase in the sale of larger units – transaction values of over £300m in 2015 represent the highest since 2006. This activity has kept prime yields keen at 4.8% and these are expected to remain steady through 2016.
Andy Heath, Cushman & Wakefield Bristol Director, said; “After a record breaking 2014, last year was subdued but not totally unexpected. However, with the rapidly improving demographic, substantial investment in the local infrastructure, high quality of life and booming digital tech sector, Bristol is one of the growth centres of the UK. We expect significant rental growth in the grade A market during 2016 with pre-let activity returning.”
Alex Dunn, Senior Research Analyst at Cushman and Wakefield, said: “The current low availability across the regions means that occupiers are finding it harder to find good quality space, particularly larger lot sizes. Those that can afford to wait and sign a pre-let on a new development are continuing to do so.”
Ben Clarke, Head of UK Research at Cushman and Wakefield, said: “Investors continue to look beyond London for higher yielding opportunities and many regional markets have seen an increase in institutional demand, while property companies and opportunity funds are also actively targeting stock with asset management/redevelopment potential.”