Betting on Bristol was a dangerous game last year. Grade-A take-up was down 80%, according to Jones Lang LaSalle’s Big Six report, with just 37,000 sq ft of lettings to trouble the number-crunchers.
The dire grade-A performance dragged down city centre take-up by 5% to 409,200 sq ft, 8% below the already weak five-year average.
Despite the grim reading offered across the year-end statistics, the five-year absence of new office development has seen grade-A supply gradually eroded to near critical levels. So with a large deal by the council to buy the 130,000 sq ft 100 Temple Street from Aviva helping to buoy confidence, developers have started to dust off their speculative office schemes (see feature, p63).
While it is good to see activity returning to the South West’s pre-eminent office market, where is the demand going to come from to fill these buildings?
EG statistics show one sector – legal – has dominated the Bristol office market in recent years, accounting for the lion’s share of grade-A take-up (see graph). Legal occupiers have radically outperformed the city’s other key sectors in five of the past seven years, leading many to claim Bristol is a legal hub, a term loosely attached to most city regions and their dominant employment sector (or those they wish were dominant).
In fact, regional giants with historic links to the city, such as Osborne Clarke, Burgess Salmon and DAC Beachcroft, have all completed major deals in recent years that have heavily skewed the figures.
But while acknowledging this fact, DAC Beachcroft’s sector leader for real estate and former regional senior partner for the Bristol office, Michael Bothamley, insists the city does enjoy a specialist status.
“I have no doubt that it is a legal hub,” he says. “And it is a growing hub for legal, specialist and professional services and high knowledge services more generally.”
Like many sectors, legal has been through a torrid few years, shedding thousands of jobs and attempting to ride out the recession. That has left acres of grey space across the country, which is gradually being shed or sublet.
But Bothamley is confident the fundamental advantages of both the English legal system and English-speaking lawyers as the advisers of choice on global corporate deals make prospects for the future much brighter.
He characterises Bristol’s legal occupiers in three groups: the large regional players with a historic base in the city; London-oriented firms looking for lower-cost office space; and talented, young professionals leaving London in search of a better quality of life.
Simmons & Simmons is among those to have made the move to Bristol recently in recognition that “location is not an issue” for all clients and types of work.
Bothamley believes more firms will follow suit as cost-cutting moves beyond shedding of staff to focus on the use of technology and the commoditisation of the types of legal work that no longer necessarily require lawyers.
“Going hand in hand with that is a much more focused attention to property requirements, where people open plan and hot desk and sweat their property assets,” he says.
“I think all City firms are thinking about what functions they can push out of London to cheaper places, both on-shore and off-shore, and a Bristol office is one of a number of solutions.”
Another much-vaunted sector and one for which it seems every city in the UK is hoping to adopt the title “hub”, is media.
Bristol has a reasonable claim to such status through its burgeoning expertise in natural history programme-making and a handful of star occupiers such as Aardman Animations, creator of Wallace and Gromit.
But the reality for Bristol’s property industry is that the future requirements of the media sector rest largely on a single upcoming decision. The BBC, far and away the largest media occupier in Bristol and a magnet for the many small production companies the city now boasts, is reviewing its estate.
Lambert Smith Hampton is advising the broadcaster on the future of its 173,000 sq ft home in Clifton, with a potential relocation on the cards. Should it take the decision to move, it is likely the cluster of independent production companies and niche media businesses that surround it would follow suit.
LSH office agency director Peter Musgrove is advising the BBC on its Bristol estate. He says there are two likely options on the table, both of which focus on some form of rationalisation.
A wholesale move would likely result in a 60,000-70,000 sq ft requirement seeking a prelet on a purpose-built office. Otherwise, a refurbishment or redevelopment of the existing estate is possible, with a feasibility study on-going.
No decision has been made, nor is it imminent, according to Musgrove, who expects announcements to be “a couple of years” away. But if a move does become the preferred option, it should generate substantial demand from the satellite firms that depend on the BBC.
Beyond that, the city’s media scene is dominated by relatively small requirements, which while vital to the regional economy as a whole, are unlikely to take significant chunks out of grade-A buildings.
So where will the future demand that is fuelling the apparent return to speculative development come from?
“Financial services led the fight back in the last recession and that’s where I see it coming from this time, too,” says CBRE senior director Philip Morton.
As elsewhere in the country, the sector has been largely frozen in recent years, with few firms willing to commit to signing new leases. That timidity saw several larger requirements for grade-A space melt away last year, or veer towards secondhand or refurbished buildings.
Canada Life, Allianz and Mapfre were among those ostensibly in the market, whose supposedly large requirements stalled, downgraded or disappeared.
But according to agents in the city, a new or revived crop of requirements are out in the market.
Barclays, Mapfre and Dupont are looking for 20,000 sq ft each, albeit with the latter looking out of town, while Santander is seeking just under 10,000 sq ft. PwC wants 25,000 sq ft and the market is watching KMPG, which has 47,000 sq ft expiring in 2017.
None of these requirements may be eye-catching in themselves, but they at least offer some encouragement.
It may not be a jackpot year for developers and landlords, but while the fashionable talk may be of legal or media hubs, the smart money will be on the financial services sector.
