Property News South West Editorial - news and deals for commercial property in the south west

Increased occupational demand and supply
An in-depth and authoritative assessment of Bristol’s office market has just been published by CB Richard Ellis (CBRE) in its half year MarketView report.
The report covers activity in the first six months of 2010 and paints a mixed picture. Although occupational demand is improving, supply of vacant offices is increasing and rents are stabilising. Investment transactions for the first half of the year were down by around 20% - but prime yields improved. However, with increased supply and diminished investor appetite, prices for investment opportunities could come under pressure during the second half of the year.
Peter Martin, associate director at CB Richard Ellis in Bristol helped compile the report. He said: “This report confirms that the Bristol office market enjoyed a stronger start to the year compared to 2009. In particular, during the first half of 2010, the out of town market has completed 93% of the take up for the whole of 2009. The forecast for the whole of the year is that total take up in and out of town will be in excess of 80% of the 10-year average, compared to under 60% last year.”
For the first half of the year, city centre office lettings totalled 239,800 sq ft, up on last year’s figure of 141,700 sq ft for the same period. The largest deals were the letting of an additional floor comprising 22,885 sq ft to NFU at Templeback and the 20,811 sq ft letting to Ernst & Young at The Paragon. The largest deal was the sale of 41,000 sq ft to No. 1 Bridewell Street to Avon &L Somerset Police.
The half year total for take up out of town was £249,300 sq ft which equates to 93% of last year’s take up for the whole year. The largest lettings were 38,050 sq ft in two buildings to Mitie at Harlequin Office Park and 21,800 sq ft to Selex Systems Integration at Building 430 Bristol Business Park. The largest deal was the sale of the former Clerical Medical building at Castlewood, Clevedon to North Somerset Council.
City centre supply levels have increased during the first half of the year – reaching 1.93m sq ft compared to 1.42m sq ft at the end of last year. This equates to 12% of total stock. Only 361,000 sq ft of the supply is Grade A, down from last year’s figure of 412,000 sq ft. However there are two speculative developments under construction. These are Wetstone, where 31,000 sq ft is due for completion in November and Bridgewater House, the first office phase of Finzels Reach, where 110,000 sq ft is scheduled for completion in May 2011.
The out of town supply situation has also increased, 830,000 sq ft compared to 775,000 sq ft at the end of 2009. This equates to 14% of the total stock. No speculative developments are anticipated to start this year.
Rents in Grade A office accommodation in both city centre and out of town have stabilised. Grade A office quoting rents remain at £27-28 psf with headline rents being agreed at £26-27.50 psf. A growing trend is for secondary building rents to be offered at £10 psf or below. Out of town Grade A rents remain at £21 psf.
Looking at capital transactions for the first six months of the year, the report states that deals were down by about 20% - £61m compared to £75.6m achieved in the same period last year. However limited supply and strong demand from UK institutions saw prime office yields improve by 25 basis points. Secondary office yields have remained stable.
The only prime city centre office deal to complete in the first half of the year was the sale of 1 George’s Square to British Steel Pension Fund for £25.375m reflecting a net initial yield of 5.75%. Other deals include The Crescent Centre in the city centre which was acquired by Wichford Group plc for around £14m reflecting a net yield of 7.9% and out of town. 740 Aztec West was sold for £8.52m reflecting a net initial yield of 8.9%.
Andy Sayner, senior director, investment said: “In contrast to 2009 when there was a severe shortage of stock, more properties have now been put on the market. The market experienced a rapid improvement in capital values over the last 12 months but recently there has been a cooling of investor appetite which could impact on prices as we move forward.”