28th January 2016
Property Insight by Alder King senior partner Martyn Jones
The following article was published in the Western Daily Press Business Guide 2015 on 28 January 2016.
The South West commercial property market performed strongly in all sectors throughout 2015 although there is increasing concern about a lack of supply in the region’s key centres, particularly Bristol, Exeter, Gloucester and Swindon.
The constrained supply, demand pressure and the prospect of rental growth support the case for further development and developers are responding, with new development underway on a speculative and design build basis in Bristol, Exeter, Gloucester, Wellington, Bridgwater and Swindon.
However the market needs further development and good quality refurbishment schemes to come forward in 2016 to deliver additional stock, particularly to meet demand for space connected to Hinkley Point C and Swansea Bay Tidal Lagoon, major projects of national significance which are driving demand on both sides of the Bristol Channel.
In Bridgwater, demand for industrial accommodation rose by 55% last year as businesses sought space to service Hinkley Point C contracts. The new Energy Innovation Centre on Woodlands Business Park in Bridgwater, developed to support a low carbon energy supply chain cluster in Somerset, will open in a few weeks and construction of a second phase is already underway. However, there is an under-supply of good quality office and industrial premises in the town and rents, which increased last year, will rise further if the current strong demand continues.
Increased demand isn’t limited to Bridgwater. Industrial take-up along the M5/M4 corridor rose 18% on the previous year to 5.9 million sq ft while supply fell to a 12 year low at 4.3 million sq ft.
The region’s office market, whilst improving overall, was more subdued than in 2014, recording 1.9 million sq ft of take-up compared to 2.2 million sq ft in 2014. Once again take-up was constrained by a shortage of Grade A office space and the loss of second-hand space for conversion to residential and student accommodation use through Permitted Development Rights, which allow the conversion of lower grade office stock to residential use without planning consent. Some local authorities are concerned about the loss of this employment space to housing, especially when there is limited new development coming forward to replace it.
The South West remains attractive to investors looking for value outside London. Bristol secured the lion’s share of South West investment in 2015 with circa £600 million of transactions. One of the city’s stand-out office deals of 2015 was Skanska’s sale of its prime city centre development at 66 Queen Square to Aviva for £32.78m at 4.94% NIY but undoubtedly the deal of the year, if not the decade, was the sale by BAE Systems of its former Filton Airfield site in North Bristol.
This 350 acre strategically significant brownfield site was sold in December 2015 to the UK property subsidiary of the Malaysian-based YTL Corporation Berhad to create 2,675 homes and 62 acres of office and industrial use. The economic benefits of this transaction will be felt for years to come. Alder King led the project on behalf of BAE Systems providing strategy, planning, development consultancy and disposal advice.
Elsewhere across the South West, a new generation of state of the art car showrooms is taking shape at Matford Green Business Park in Exeter. Five prestigious car marques will relocate from Marsh Barton Trading Estate to Matford Green, kick-starting development on one of the city’s primary development sites and cementing its reputation as a leading automotive hub.
Gloucester has benefited from significant new speculative development at Gateway 12, Waterwells Business Park and Quedgeley West while in Wiltshire, ground works have begun on Hawke Ridge Business Park, a 35 acre enterprise hub at the heart of the A350 corridor.
After a challenging few years, the region’s retail sector saw increased demand and higher transaction levels in 2015 with a small increase in rents in some locations. The discount sector remains very competitive, particularly in the food and clothing sectors with Aldi and Lidl extremely active.
As we look further ahead into 2016, economic confidence remains strong although there are concerns about the forthcoming Brexit referendum. Amongst all the talk about the Northern Powerhouse, the key issue for Bristol and the South West is to ensure we market ourselves successfully to secure our fair share of economic investment and this will best by delivered through regional devolution.