Last month Ovo Energy, which has been in the business pages of most newspapers for its rapid growth since the start of the year, launched a major new headquarters search.
However, instead of opting to expand in London, as many presumed, Ovo Energy has instructed DTZ to find it as much as 60,000 sq ft in Bristol city centre by 2015. The figure means the firm could secure the largest office leasing deal in Bristol since the recession.
The company, which is aiming to take on the big-six power suppliers, is one of a handful of tenants seeking new offices in the city. The demand, coupled with dwindling supply and against a backdrop of a continually improving economy, means the market is heating up.
Could landlords find themselves back in the driving seat after years of having to accept discount deals in order to let their buildings?
In a sign of improved activity; Savills has calculated that take-up in the first quarter of 2014 reached 223,960 sq ft – a 75% rise on the previous quarter, and 7% higher than the 10-year average for Bristol. The number of deals done was also up by 23% on the same period last year.
Tenants that agreed leases in Q1 also came from a range of sectors, such as telecoms, media, law, and financial. Deals included HSBC taking 16,500 sq ft at Redcliff Quay and BNP Paribas Real Estate taking 4,000 sq ft at Portwall Place.
Savills says the deals are not necessarily larger than in previous years but certainly more frequent, and admits more new requirements are now larger than in previous years.
In addition to Ovo, Q2 has already seen new requirements from banking group TSB, research organisation Which?, and engineering and design company Parsons Brinckerhoff, which are seeking 50,000 sq ft, 20,000 sq ft and 25,000 sq ft respectively.
Chris Meredith, director of office agency at Savills, says: “Due to an increase in demand for grade-A space across the city, predominantly due to occupiers with lease expiries and break clauses entering the market, we expect there to be a shortage of grade-A stock in the next 12 to 24 months.”
However, GVA’s director office agency, Richard Kidd, is not convinced it is merely lease breaks fuelling movements.
He explains: “We are finding activity is more to do with the economy improving. Occupiers are generally in need of more space and more are coming forward with a real desire to move and expand.”
Kidd adds: “This occupier confidence combined with the significant level of secondhand offices being sold for conversion to residential uses (see page xx for office to residential feature), should result in a positive outcome for the market in 2014.”
Current availability of offices is less than 1.2m sq ft – the lowest figure since 2007. It is forecast to fall again in 2015 and 2016.
A number of agents and landlords now believe that 2014 will be a major turning point for landlords and give them more financial returns than they have seen since the crash.
DTZ has strong rental hopes, and has forecast that rents will increase 5.5% from a headline of £27.50 per sq ft now, to £29 per sq ft by 2017. Any rise will be welcomed by building owners after enduring static rents since 2012, and rents dropping to £26 per sq ft in 2009.
One landlord that is confident of securing £28 per sq ft is Salmon Harvester, which in a joint venture with NFU Mutual, is speculatively developing the £35m, 100,000 sq ft Two Glass Wharf, at Temple Quay. It is due to be completed by the end of the year.
Rorie Henderson, development director at Salmon, says three parties have shown serious interest in a prelet.
“We are eight months away from completion, so having strong interest is as good as we could have hoped for at this stage,” he says.
On securing a prelet he says “all the indicators are in our favour” as such he is hopeful of achieving the £28 per sq ft quoting price and does not expect to have to give away long rent-free periods. Names linked with a possible prelet at Temple Quay include PwC and KPMG.
It is a similar story for 66 Queen Square (right) which is being speculatively developed by Swedish-owned Skanska. Agents fully expect the 61,000 sq ft scheme to secure tenants ahead of its May 2015 expected completion date.
Of course, the proof of agent and developer rhetoric will only come when deals for new space are signed, but there are concrete signs that incentives are starting to reduce at least.
Catherine Collis, at Alder King, says typically since the recession, rent-free periods of up to 20 months could be offered on a five-year lease. This has now dropped to between 12 to 18 months, and Collis expects this to drop to just 12 months maximum rent-free.
“We are seeing more months being shaved from rent-free deals, and this is putting more power back into landlords’ hands,” she comments.
Ben Jones, partner in the Bristol commercial property team at law firm Thrings, concurs: “In the dark days of the recession, landlords desperately wanted to let space, so they would offer great incentives for occupiers. There is definitely a move away from that.”
He adds that he is experiencing more interest from developers looking to undertake refurbishment programmes as they become more confident of occupier interest.
More new developments are certainly needed, according to Jeremy Richards, head of the Bristol office at JLL. He says: “Occupiers looking at a design and build solution previously had a large variety of options. This is now not the case. Unless an occupier has time, deliverable choices are surprising limited. Major refurbishments of existing stock will become more in focus.”
The flames have now been lit and requirements are larger than seen in previous years. As a result agents and landlords are confident Bristol is more energised to power ahead.
Painting a healthy picture despite the recession
Demand from small creative industries in Bristol does not seem to have been dented by the recession, writes Stacey Meadwell. And now bigger firms want a slice of quirkier space favoured by these businesses.
Verve Properties’ Paintworks scheme is a case in point. It has been 100% let during the recession with no drop in rents to secure tenants. Detailed planning permission for the third phase, which will offer bigger chunks of space, is expected this month. The firm is also looking to replicate the success of Paintworks with its redevelopment of The Brew House, due to complete in December.
Ashley Nicholson from Verve says: “The space was initially planned for small businesses but what we are finding in later stages of Paintworks and now with Brew House is that more companies are after character space. “They aren’t looking for grade A or grade B but looking for character and fun, somewhere people enjoy working.”
Character in the Brew House includes a tuk-tuk converted into a coffee machine, Banksy-style murals on the toilet doors and exposed ironwork.
Rents at Paintworks are £16 per sq ft and have yet to be decided for the Brew House “but why would it be any less?” says Nicholson.
