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Property Insight: Facing up to the supply challenge

In the face of a year of colourful political and economic activity, the South West commercial property market proved extremely resilient in 2016, with strong demand across all sectors, particularly in the industrial market.  Whilst we should be braced for further uncertainty as the UK negotiates the many changes ahead, there is much to be optimistic about this year.

Primarily, there is underlying investor confidence in the economy and property market.  The UK’s reputation as a safe haven and attractive exchange rates will continue to fuel global and domestic demand for limited opportunities.

Demand for industrial space across our region soared to 8.4 million sq ft, 44% up on 2015 and 89% up on the five year average.  Supply fell to its lowest level for over 12 years.  This imbalance between supply and demand will drive demand and increased rental and capital values in 2017.

The region’s office market also performed well but was constrained by the shortage of quality supply.  Bristol, Bridgwater, Exeter and Gloucester all saw increased take-up, with Bristol recording its second best performance since 2007, boosted by several large city centre deals.  

Despite the lack of supply in the market, rents remained generally static but with a few notable exceptions.  Bath overtook Bristol with the region’s highest office rent in this cycle at £31 per sq ft for the top floor of the recently remodelled 20 Manvers Street.  Exeter also achieved a new office rental high of £18.50 per sq ft for the letting of Emperor House at Exeter Business Park. 

Despite the market dynamics, developers remain cautious about speculative development and, while some schemes are starting on site, office and industrial stock will continue to reduce.  This will impact on the region’s competitiveness in the next two to three years unless more development is brought forward quickly.

Central government is seeking to stimulate activity through infrastructure projects and public sector relocations.  Bristol has already benefited, securing a 107,000 sq ft pre-let at 3 Glass Wharf to HM Revenue & Customs and, with uncertainty removed from the Hinkley project in late 2016, we expect momentum will build in 2017, driving occupier demand, particularly in the local industrial market.  The shortage of stock in Bridgwater is pushing occupiers towards design and build and construction is likely to start this year on several schemes, including development at Woodlands Business Park and Peninsula 23. 

The Bristol Arena project has been delayed yet again but there is finally progress for the redevelopment of one of Bristol’s worst eyesores – the former sorting office site behind Temple Meads.  The University of Bristol plans to establish a new £300 million Temple Quarter Campus on the site in time for the 2021/22 academic year, a project which will provide an important catalyst for economic growth and job creation. 

The motor showroom sector continues to invest in the region, with new developments underway at Matford Green, Exeter, Barnwood Point, Gloucester and Hampton Park West in Wiltshire.  Other key areas of growth come from occupiers in the logistics sector, particularly those involved with internet fulfilment, added value engineering, food and drink retailers, and the public sector.

Finally and probably most significantly, the Devolution Agreement secured last year between Bristol City Council, Bath & North East Somerset and South Gloucestershire Council has the potential to revolutionise the West of England.  The deal, the largest in the country, will unlock £1 billion of spending for the region. No doubt there will be challenges for the new West of England Mayor who is to be elected in May this year and the Cabinet, but the objective is to enable everyone to share in the benefits of our region’s economic success. 

Originally published in the Western Daily Press Business Guide on 26th January 2017.

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