Warehouse to let Central Park in the middle of Bristol’s booming commercial property market
The region’s commercial property market could be about to go nuclear. The plans for a new nuclear power plant in Bridgwater have been in the pipeline for some time, but the recent announcement by the European Commission that it has cleared state aid rules removes the biggest obstacle in its path. While energy firm EDF is trying to build a supply chain principally within Somerset, the impact of Hinkley Point C will be felt far beyond the county. Following the announcement, James Durie, executive director of Business West, described it as a “massive boost for Bristol and the South West”. He said: “Businesses in our region will be a vital part of the supply chain opportunities on offer for this £16 billion project, with the possibility that it could create up to 25,000 jobs. With a project of this magnitude and its long-term timescale many construction organisations are already on board and benefiting but the impact of this will be felt far and wide beyond the construction industry.”
The commercial property market is one of those areas set to feel the uplift as the size of the investment brings new companies into the area. Those considering investing off the back of Hinkley will get additional encouragement from the longer-term prospect of a new reactor in South Gloucestershire at Oldbury, in a Hitachi-led project. EDF itself is believed to be looking for a new regional base, and being linked to every major office development from Devon to Gloucestershire. But other firms will come too.
Jeremy Richards, head of JLL’s Bristol office, said: “We’ve already seen this, with a major letting in Gloucester earlier this year by Horizon Nuclear Power, just one of a growing number of commercial property deals in this sector. EDF and many of their suppliers have significant requirements for office space in the region as a result of this project.”
Developer Dowlas announced last week a 260,000 sq ft office building in Weston-super-Mare’s Enterprise Area. The firm’s Gemma Day said: “With renewed economic activity and particularly investment in the nuclear industry we are confident that the building will be fully let in the near future.”
The combination of big infrastructure investment – the electrification of the rail line from Bristol to London cutting 20 minutes off journeys to the capital is another – with the improving economy adds up to a positive year in the office market. Deals are starting to happen in a number of sectors. For example, the newly re-established bank TSB is moving out of the city centre to larger premises at Keypoint in the Almondsbury Business Park outside Bristol and Broadcom signing a 10-year lease on 25,230 sq ft at nearby 910 Aztec West. In short to medium term, the thing that holds the market back could be supply.
Chris Grazier of Hartnell Taylor Cook LLP, joint letting agent with CBRE on the TSB deal, said: “Keypoint is a prominent office building overlooking the M4/M5 interchange and its letting reflects the significant presence TSB has in the Bristol community. Its letting in turn means the supply of good quality office space in North Bristol is depleted and companies looking to move in the short term will have a limited stock to consider.”
Steve Lane, senior surveyor at JLL, agrees. He said he expected Bristol to see the highest amount of take-up in square footage in 2014 since 2001, but is concerned about supply for 2015. In the first half of 2014, take-up for the city’s out-of-town market totalled 220,000 sq ft – 35 per cent higher than the five-year six-monthly average. Thirty-nine transactions over 1,000 sq ft – of which six were more than 10,000 sq ft – took place in the first half of 2014. This was double the figure for the same period in 2013.
Steve said: “It is very encouraging to see a marked uplift in demand in the out-of-town office market, which has been very subdued for the last few years. The challenge now will be a lack of stock to meet the increased demand, particularly given the fact that there are currently no out-of-town schemes under construction in Bristol.” He said refurbishment schemes such as 740 Aztec West would help, but more was needed. “The 740 Aztec West project will also encourage other landlords and developers to consider similar schemes once they see its success,” said Steve. Out-of-town demand will be key further up the M5 too.
Adrian Rowley, a partner in the Gloucester office at property consultants Alder King, said: “Gloucestershire’s office market is more aligned to out of town locations in Gloucester, Cheltenham, Tewkesbury and Stroud where consented land is available and developers aren’t competing with higher value land uses as they would be in city centre locations. Demand has increased over the past three years with around 100,000 square feet of known requirements active in the market.”
Another area driving the West market forward is logistics and distribution. Road links to the South West and West Midlands and beyond via the M5 and London or South Wales on the M4 make the region a hot spot for the sector. Recent developments include the 175,000 sq ft cold store being built for retail food chain Farmfoods in Severnside, near Bristol. The temperature controlled distribution centre at Central Park is being built by Roxhill, the development partner of Central Park’s owners, Delta Properties, and is due for completion by the end of the year.
Paul Hobbs, director of industrial Agency at GVA in the city, said: “It’s therefore no surprise that as the markets return, we see businesses choosing locations such as Central Park as the hub for their distribution and logistics expansion in the region. The latest Bristol take-up figures for industrial property suggest a strong first half of the year, with rental growth also predicted for the next six months. With limited speculative development taking place in the region, the ability to fast-track development such as the Farmfoods centre at Central Park will no doubt appeal to companies serving the changing retail markets and the resurgent trade counter sector.” Farmfoods will be the second logistics occupier at the 600-acre Central Park, joining pallet distribution company Chep UK. The region is already home to the landmark Morrison’s depot in Somerset, which was recently sold on a leaseback deal to Aviva Investments. The rise of internet retail will only drive this further, as businesses compete to deliver next day or same day to meet customer demand.
Tim Davies, head of Colliers International’s Bristol office, said most activity in the region’s industrial sector has been design and build initiatives over the last few years. “Predominantly, this has been caused by the lack of funding for speculative development as recessionary pressures all but removed lending from the market,” he said. “In addition to this, occupiers have become far more sophisticated in the way they operate and therefore standard boxes don’t always provide the optimum solution. These specific operational requirements can be catered for in ‘build-to-suit’ developments whereby the occupier can effectively design the exact building for the way they work. Many of the requirements that are coming to the market have got specific operational requirements and that could well be satisfied if buildings are designed and built to meet this criteria. For example, Asda will have a different format than Co-op or Waitrose.”
Colliers head of forecasting Walter Boettcher said: “The trends Tim mentions in logistics is also increasingly obvious in the manufacturing sector where shortages of high quality expansion space, especially for suppliers, is leading large corporates to begin pooling resources. We continue to see strong growth and low inflation. This time last year we had barely passed the point where the media was convinced we were heading for a triple-dip recession. Whether by luck or judgement economic confidence is rising. The recovery appears to be more balanced than before and increasing capital investment is making it more sustainable. One thing is clear: these are not short-term problems, the recovery is looking increasingly robust with purchasing manager indices showing that the South West moving in concert with the West Midlands through a period of sustained strong expansion. With confidence up and companies increasing capital investment demand for quality space will continue to intensify.”
The final driver for the market in the coming year will be residential. Last week BAE Systems and Alder King submitted plans to turn the Filton Airfield site to the north of Bristol into 2,675 homes. There are significant new housing developments around the northern fringe of the city, including in Emerson’s Green and Cribbs Causeway, as well in North Somerset, clustered around the edge of Weston-super-Mare. Most such schemes bring industrial and office space too as planners look to create communities where people can work, rest and play.
Dave Mace, regional senior director at GVA, summed up the outlook. “Without doubt there has been a significant shift in sentiment through most of the property sectors in our region over the past 12 months and a definite air of optimism,” he said. “Unquestionably this has been fuelled by improved occupier demand and a seemingly insatiable appetite from cash-rich investors switching their attention away from London towards the stronger regional centres. This has already kick-started some speculative development but nevertheless the spectre of chronic under supply overshadows some of the markets and unless addressed will stifle growth. Investment in infrastructure plays a crucial role in boosting developer and investor confidence and the significance of projects such as Hinkley Point and the electrification of the Bristol-London rail-line should not be underestimated. Whilst public sector purse strings remain tightly drawn we are already seeing through our Local Enterprise Partnerships the effectiveness of the private and public sectors working closely together. Crystal ball gazing is always dangerous but all the economic indicators show that our region with its diverse strong economy, unrivalled infrastructure and quality of life is best placed to take advantage of the recent upsurge. It’s now down to all of us, private and public sector alike, to grasp the opportunity by releasing more land and bringing forward more development – carpe diem.”
Source: Bristol Post