After years of fighting over scraps, Bristol’s occupiers are entering a period when they will be spoilt for choice. Around 2.8m sq ft of space in 19 potential office schemes is in the process of coming on stream.
In a market with just 10,000 sq ft of prime space available, occupiers should be falling over themselves to sign up. But they are not. While, at face value, prelet figures look incredibly healthy, below the surface the story is less rosy. According to King Sturge, preletting peaked at 334,000 sq ft last year – a massive 38% of the total 876,000 sq ft of take-up.
While that looks good on paper, it includes one of the largest office lettings nationally in 2004 – Clerical Medical’s 176,000 sq ft prelet at Harbourside, which alone accounts for over half the city’s prelet figure for 2004.
As a result, developers have remained conservative, despite agents’ cries about the almost painful shortage of prime office space. Many say they will not start building without a significant deal. So, with more than 1m sq ft of stock either on the market or under construction, will any developer bite the bullet and build speculatively, or are schemes set to languish on the drawing board?
This is a question preying on many agents’ minds. “There is an enormous amount of planning submissions in the pipeline, and that’s bound to depress values,” says David Skinner, chairman at CBRE’s Bristol office.
Pointing to the city’s annual take-up – which, in a “decent year”, Skinner estimates is 5,000 sq ft – he adds: “I am concerned about the number of sites geared up to potentially develop offices. One hopes that some will drop by the wayside. As ever, alternative uses will come up, and that will move a few forward but, overall, there are too many planning proposals.”
As a largely local market, Bristol’s officetenants have shied away from prelets, opting for the city’s numerous secondary offices. As a result, Alder King estimates that, out of 2004’s total take-up, only 50% was “true” and not expansion or consolidation by existing occupiers.
Brave to begin
Despite this, several schemes have got off the ground. Tower Wharf, due for completion in October, will add nearly 72,000 sq ft to the market. Six months later, 3 Temple Quay will add another 22,000 sq ft. In November 2006, Temple Circus is due to deliver 90,000 sq ft. The Core, which completes in July, is the only one with a prelet, having signed up BUPA for 17,500 sq ft at a rent of £20 per sq ft.
With prelets thin on the ground, Chris Grazier at Hartnell Taylor Cook believes it would be a brave developer who started on site. “The problem is getting people to commit,” he says. ” There is still so much uncertainty about the economy, and Bristol occupiers don’t like prelets.” Pointing to Fujitsu’s 30,000 sq ft requirement, he says: “Nowadays, more and more companies are on fixed-term contracts; one day they’re tendering and the next day they are on site.”
Grazier believes many developers already on site are there because they have to be rather than because they want to be. “Temple Quay II is a speculative development, but it’s in a secondary location, so the developer will have to build it because people need to be able to see it,” he says. “And Temple Circus is a large building, and it’s got competition from Tower Wharf, so it won’t let until it is built.”
There are other examples. James Gregory at Donaldsons points to HDG Mansur’s Finzel Reach development on the former Courage Brewery site as a case in point. Local lawyer Beachcroft Wansbrough is looking for 100,000 sq ft in Bristol and is widely rumoured to be interested in the site.
HDG Mansur was recently granted permission for revised plans, which reorientated the residential element of the £200m plan and included a bridge to link the site with Castle Park. But, adds Gregory, “they wouldn’t commence without Wansbrough”.
He believes the same is true of Hartwell House, Victoria Road. Planning permission on the 56,000 sq ft five-storey office development runs out in November, which may have concentrated developer Hartwell’s mind. “Five years ago, the Redcliffe Futures Group – a pressure group pushing for improvements in Redcliffe – was not active. And if Hartwell resubmits, it will almost certainly lose some of the parking,” says Gregory.
Retained agent Simon Price, partner at Alder King, confirms a speculative start is on the cards but admits the planning situation “helped persuade” Hartwell. He agrees that Bristol’s development pipeline is possibly a bit too full but believes fortune will favour the brave.
Market dynamics
“So many schemes are holding out for prelets, that when one comes along, occupiers have a choice of 10 or 12 schemes and can drive a very hard deal,” he says. “Our clients decided not to hold out and went for speculative development because they think the market dynamics are such that it will be successful.”
Price says he also expects a start will be made on the 40,000 sq ft Temple Quay II. “We’ve had some planning issues, but Castlemore has definitely decided it is going to speculatively develop a building.”
But with some developers forced into taking action, could we see a sudden glut of space? Levels of demand for Bristol city centre seem to point to a soft landing rather than a sharp shock. Law firm Burges Salmon is still hunting for 150,000 sq ft. Richard Rees, head of national development at Savills and the firm’s agent, says it has “four or five sites” that it will shortlist in August, with a view to selecting a prelet in 2006 for occupation in 2009.
Then there is stockbroking firm Hargreaves Landsdown, which wants up to 90,000 sq ft of space. Adding in the requirements from the civil court, Fujitsu, Beachcroft Wansbrough, the environment agency and Ofsted, a total of 250,000 sq ft is being sought.
With that in mind, Jeremy Richards, partner at King Sturge, believes not an awful lot is actually being built. “If we were building another two schemes, I would be worried but, at this stage, I’m confident that prime rents will move forward.”
That is something that agents will eagerly anticipate. The deal at Temple Quay last December to Royal Bank of Scotland broke Bristol through to the £24 per sq ft level. There is now renewed hope that Bristol city centre can breach the £25 per sq ft barrier. “We need something in the shop window to drive the market forward,” says Philip Morton, a director at DTZ.
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Out of town Take-up 270,470 sq ft in 2004, down 17% on 2003’s total Supply 360,000 sq ft, remaining steady from 2003 Rents £20.50, up 25p on 2003 Royal & SunAlliance has signed up Interoute for 910 Hempton Court on Aztec West Business Park. The contractor will pay £20 per sq ft on a 10-year lease with six months rent-free and a break clause in September 2010 on 25,000 sq ft The South West of England Regional Development Agency has acquired the final plot of land for the Bristol Science Park – the 1.1-acre Hytoken House |
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City centre Take up 897,350 sq ft this yea — double 2003’s level of 473,710 sq ft – largely due to Clerical Medical’s 176,000 sq ft prelet at Harbourside Supply 1m sq ft – almost identical to 2003’s figure. Nearly 850,000 sq ft is secondhand or refurbished Rents £24 per sq ft, rising a modest 50p. The level was achieved at 3 Temple Quay’s 23,000 sq ft letting to Royal Bank of Scotland Donaldsons will move to 70 Redcliffe Street, and is rumoured to have paid £19 per sq ft Bristol council is looking for a preferred developer to masterplan its 4-acre St Mary le Port scheme |
