The weight of money chasing Bristol investment opportunities show no sign of easing as the market begins another financial year. Indeed, all the indications are that 2005-06 will see yields driven down still further as property owners in the city continue to hold the upper hand.
Over the past 12 months there were 41 significant investment transactions totalling close to £460m. These are figures that are firmly believed to have smashed all records for the Greater Bristol area.
The largest deal was the purchase by The Mall Company of The Galleries Shopping Centre in Broadmead in central Bristol for £123m from Morley Fund Management. The most active market by far was for central Bristol offices, which saw 12 transactions totalling £205m during the year.
The largest of these was the funding by Topland Estates of the HBOS headquarters building, now under construction in Harbourside, for £64m from Crest Nicholson.
According to Roger Chubb, investment partner at Hartnell Taylor Cook, half of the office investment deals were purchased by institutions, with the largest – the funding of the Rok scheme at Temple Quay – going to the German fund, Oppenheim Property Fund Management.
The second most active sector was industrial, which saw eight transactions totalling £40m, including two acquisitions and one sale by Ashtenne. As with offices, half of the industrial investment deals were purchased by institutions in this instance, all UK based, says Chubb.
“Virtually half of all the significant investment purchases in Bristol during the past 12 months were made by institutions, the remaining acquisitions being mostly UK-based private investment companies and private investors,” he says. “This bodes extremely well for the Greater Bristol market for the year ahead, particularly for those developers who are putting up buildings and close to signing well covered occupiers.”
Andrew Brooksbank, head of the commercial team at Knight Frank, Bristol, says that, over the past few years, Bristol has seen a level of investment that has reflected its position as the major regional centre for the South West.
“The most notable feature must be the size of some of the deals concluded, with many of the pension funds and institutions willing to commit upwards of £40m to single assets,” he says. “While the weight of money available for property investment naturally results in a focus on some of the larger lot sizes, it is also clear that the major developers and investors see real potential for asset performance in the Bristol market.”
Brooksbank points to recent research by Knight Frank which assessed the relative strengths of commercial property across the European office, industrial and retail sectors. For all European cities, Bristol achieved a higher rating than any other, with the exception of Dublin.
“The Prudential’s recent purchase of the DETR building on Temple Quay at a price of more than £43m, and Morley’s recent acquisition of 100 Temple Street from Sydney & London at a price approaching £40m and a yield of around 6.5%, demonstrates that the Bristol market is continuing to strengthen,” he says. “While our market is not just about the big deals, these do help to underpin confidence in the market and Bristol’s position as a growing centre of national importance.”
What is also evident is that all sectors are performing well, including the retail warehousing sector, which saw three deals by institutions last year totalling £25m, the largest being the purchase of South Bristol Retail Park by La Salle Investment Management for £14.89m.
Without doubt the most significant transaction in the retail market was the sale of a 50% stake in the Mall Shopping Centre at Cribbs Causeway to Liberty International, which paid £635m for this and a half share in a Manchester shopping centre from the Prudential.
As already mentioned, Bristol’s major in-town shopping centre, The Galleries Mall, also changed hands, being acquired by the Mall Fund for £123m from Morley Fund Management. A further nine shopping centres in the South West were sold last year.
Looking to 2005 and beyond, confidence is high ahead of the completion of a number of substantial schemes over the next decade, including Harbourside, the Broadmead retail redevelopment and a Bristol Arena. Schemes at Broad Quay and Wapping Wharf will provide a further boost to Central Bristol, while Avonmouth and Severnside are currently the focus for industrial and warehouse developments.
Andy Sayner, head of investments at CBRE in Bristol, says the situation in Bristol mirrors many of the more affluent markets in the UK where, despite limited occupational demand, marginally higher costs of borrowing and patchy rental growth, the market is seeing yields falling and capital values rising.
“For how much longer this can continue is a matter of conjecture, but for the time being it shows no sign of abating,” adds Sayner. “With tumbling property yields across most sectors, institutions have to pay keen prices to increase their property weighting. The retail property funds have millions of pounds flowing into their accounts everyday. The problem is finding the stock.”
He adds: “With the property investment market continuing to strengthen, an increasing number of vendors, and especially property companies, are being encouraged to realise profits on properties which, in some cases, may only have been acquired as recently as 18 months ago.”
Prime yields for offices in Bristol are now around 6-6.25%, while yields for secondary stock have hardened even more over the past 6 months than yields on prime stock, which looks good value comparatively.
Two examples have been: Deeley Freed’s Georges Square, bought by Anglo Irish Bank in November for £24.5m, reflecting an initial yield of 6.2%; and the 141,000 sq ft DETR building at Temple Quay, let to the secretary of state for a further 16½ years at £18 per sq ft with an estimated rental value of around £21.50 per sq ft. The latter was bought in October 2004 by Prudential for £44.1m, reflecting an initial yield of 5.7% and an equivalent yield of 6.1%.
David Ferris, investment Partner at NAI Fuller Peiser, is among those who believe that Bristol will see a slight increase in the number of transactions in 2005. “A number of investors are capitalising on the growth in value that has been achieved over the past few years,” he says. “Overall, the market is still strong across all sectors, with a variety of investors keen to acquire in the major South West towns.”
He adds: “It is also a market that is attracting considerable and above average international interest. Last year, a number of overseas investors – including a German fund, two syndicated Danish funds and a number of Irish investors – that have traditionally sought to buy in London, bought in Bristol, and we see this trend continuing.”
