15th January 2016
South West commercial property market delivers strong 2015 performance despite structural lack of supply
The South West commercial property market performed well in all sectors throughout 2015 although there is increasing concern about a structural lack of supply in the region’s key centres, particularly Bristol, Exeter, Gloucester and Swindon, says Alder King in its annual Market Monitor report.
New development is underway on a speculative and design build basis in Bristol, Gloucester, Wellington, Bridgwater, and Swindon but the market needs further development in 2016 to meet growing demand, says Alder King’s head of agency Simon Price.
“The constrained supply in many locations, demand pressure and the prospect of rental growth increasingly support the case for further development. New speculative developments and good quality refurbishment schemes will come forward in 2016 to deliver much-needed stock.”
Alder King’s Market Monitor reveals the South West office market, whilst improving, was more subdued than in 2014, recording 1.9 million sq ft of take-up compared to 2.2 million sq ft in 2014. Take-up was constrained by a shortage of Grade A office space in many key centres and the loss of second-hand space for conversion to residential use through PDR. By the end of Q4 2015, the supply of office stock across the region had fallen 15% compared to 2014 to 3.2 million sq ft, a figure 30% below the five year average.
In Bristol, office take-up reached 783,000 sq ft, a figure in line with the five year average but lower than 2014’s excellent performance of 1.25 million sq ft. Notable Grade A city centre transactions included the acquisition of 16,796 sq ft at 2 Glass Wharf by Arcadis and four lettings at Templeback. Transactions totalling over 120,000 sq ft which didn’t complete before the end of 2015 are expected to get the first quarter of 2016 off to an excellent start.
There is now less than 140,000 sq ft of available new Grade A space in Bristol city centre. Circa 650,000 sq ft of new speculative starts and refurbishments are under consideration, including Salmon Harvester/NFUM’s 3 Glass Wharf, but the only scheme currently under construction is Phase 3 at The Paintworks which has already secured a number of occupiers.
Top headline office rents increased in key locations such as Bath, Exeter, Plymouth, Swindon and Taunton. Although Bristol and Truro rents remained unchanged in 2015, rents in Bristol city centre are expected to break through the £30 per sq ft threshold in early 2016.
The South West’s industrial market performed strongly in 2015 with 6.1 million sq ft of take-up, up 24% on the previous year. Industrial supply fell 40% on the 10 year average to 4.3 million sq ft across the region. In Bristol, supply is now at a 12 year low at 1.25 million sq ft.
The dramatic drop in supply, coupled with a significant increase in demand for mid-range industrial space, has triggered both speculative and design build activity by developers including St Modwen, Summerfield, KMW and Rockhaven in Bristol, Gloucester, Wellington, Bridgwater and Swindon and driven rental increases in Bristol, Bath, Bridgwater, Gloucester, Plymouth, Taunton and Truro.
The South West remains attractive to investors looking for value outside London, with Bristol securing the lion’s share of South West investment in 2015 with circa £600m of transactions. Bristol’s office sector accounted for 71% of the city’s investment transactions. The two largest transactions were the off market acquisition of 10 Templeback by Orchard Street from Benson Elliott for £58.6m, 5.34% NIY, and the sale by Skanska of 66 Queen Square to Aviva for £32.78m 4.94% NIY.
The retail sector saw increased demand and higher transaction levels in 2015 with a small increase in rents in some locations. The strongest demand was concentrated on prime pitches; in secondary and tertiary pitches, demand remains fragile. The discount sector remains very competitive, particularly in the food and clothing sectors with Aldi and Lidl extremely active.
Alder King’s Market Monitor 2016 provides a summary of the commercial property market in Bath, Bridgwater, Bristol, Exeter, Gloucester, Plymouth, Swindon, Taunton and Truro. It also covers Cardiff, Newport and Swansea in South Wales and reviews the residential development land market and strategic land planning.