‘Office rents to rise to highest levels ever’

Bristol’s city centre office market is facing a ‘perfect storm’ of high demand and low availability that will see rents rise to their highest levels ever in 2017.

Figures we have just issued from the Bristol offices team at Colliers International reveal that in 2016 total take-up of city centre office space totaled 783,000 sq ft – almost a third above the five year average.

Yet the fact that requirement for office space in Bristol is at an all-time high, particularly in the city centre, comes within the context of a chronic shortage of stock, and it now seems inevitable that the headline rent of £30 per sq ft that has so far eluded Bristol will be breached in 2017.

An exceptional year of take up in Bristol in 2016 has seen overall figures surpass the 1 million sq ft mark for the second time in the last three years.

At 20 per cent above the five-year average, the office market had a very strong final quarter both in and out of town. There were twice as many deals over 20,000 sq ft during the year compared with 2015.

The Energy and Insurance sectors played a significant role in take-up in the early part of the year, and the Government dominated take up in the final quarter, with HMRC who signed a pre-let on 107,000 sq ft at Salmon Harvester’s 3 Glass Wharf, Temple Quay. This was the biggest Grade A transaction of the year.

Demand in the city centre is anticipated to remain strong in 2017. Rents, especially in the Grade A sector, are likely to improve with £30 per sq ft predicted to be achieved.

Bristol’s out of town market also saw a strong final quarter in 2016, with take-up of 111,000 sq ft which was an 80 per cent increase on the previous quarter.

Total out-of-town transactions for 2016 totalled 308,000 sq ft, with three lettings over 20,000 sq ft – two of which were in the final quarter – contributing to keeping the annual total just above the five-year average.

The largest letting of the year was at 100 Bristol Business Park where Babcock signed in the final quarter on 32,000 sq ft. This was closely followed by 930 Aztec West where Highways England took 30,000 sq ft.

The office market in Bristol is now very different to 2008, when I relocated here and just before the start of one of the worst recessions the UK has seen.

That contrast is vividly illustrated by the changing fortunes of some Bristol’s best-known offices. In 2009, rents at Colston Tower were £10-£11 per sq ft in 2009. Now they have reached £20-£25 per sq ft, an increase of around 115 per cent.

Similar rent levels of £22-£25 per sq ft are presently being achieved at Castlemead, next to Cabot Circus. In 2009, rents here were £16-£17 per sq ft.

In the same period, rents have risen by 110 per cent at Vintry House in Wine Street, from £10 per sq ft to the present £21-£23.50 per sq ft.

These rent increases have been driven by lack of supply – not simply because of increased demand, but also because of the introduction by the former coalition Government of Permitted Development Rights, enabling change of use from office to residential.

This has resulted in a large proportion of the office market – particularly around the northern fringe of the city centre – moving to residential use.

Office availability in Bristol peaked in 2011, when there was over two million sq ft to let in the city centre. In 2014, a record year for office take-up, saw a big drop in this level. There has since been a steady decrease to below one million sq ft, which is around just over a year’s supply based on current take up levels.

Lack of new development is also pushing rents upwards. The only speculative office development currently under construction in Bristol is Aurora at Finzel’s Reach, which will provide 95,000 sq ft.

James Preece is national offices director at Colliers International.