Bristol under the spotlight - 2021 Q1 MARKET REVIEW - ETP Property Consultants
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Bristol under the spotlight 2021 Q1 MARKET REVIEW Commercial Agency Loan Security valuation Dilapidations Business Space Accounts Valuation Acquistion Surveys Rent Reviews Pensions Valuations Reinstatement Cost Lease Renewals IHT Valuations Assessments
"the only UK city, other than London,
to make a positive net contribution
to the Exchequer"
£14.7bn
Riots, protests & statues
Riots, protests and felling of statues, Bristol is already in the spotlight and gaining a reputation for being
disruptive. But, is that not the allure of Bristol, a youthful city constantly re-writing the narrative and
reshaping the city’s future? The future of our planet has also featured heavily. The City and WECA have
announced measures and packages of more than £20m already. The Clean Air Zone (CAZ) is likely to be
approved by October 2021 and mayor Marvin Rees is promoting a £4bn underground rail network.
A sizeable city, Bristol is just far enough away from London to be independent and not a commuter hub like
Reading, Newbury and Swindon, and with a strong tradition of fiercely independent high streets intermingled
with big tech firms and international players such as Rolls Royce and Airbus to name just two.
Before the pandemic, Bristol contributed £14.7bn to central Government, the only UK city other than London
to make a positive net contribution to the Exchequer. It is expected that Bristol is well placed to build back
better and faster than other similar sized cities in the UK due to the globally significant tech cluster; the
highest start up and survival rate in the UK; centres of excellence in aerospace and engineering and; the
highest cluster density of financial and professional services anywhere in the UK. As a city, we are well placed
to continue to attract highly skilled individuals and innovative entrepreneurs.
The future of the city will undoubtedly look and feel different as we re-adjust to a post pandemic world. Will
office workers return to the centre? What is the future of physical retail? And, how quickly can the industrial
market expand to meet growing demand?
Retail
The Inevitable Sped Up
The pandemic has accelerated the decline of The UK has about 4.6 sq ft of retail space per
retail and compressed what may have been a capita, substantially less than the US (23.5),
gradual change over five years into a period of Canada (16.8) and Australia (11.2), but the
12 months, perhaps the biggest change since highest in Europe and any of the other
supermarkets conquered suburbia. Although developed economies. Bristol has 3,286,000 sq
this is undoubtedly not good news for all ft of retail space and, with a population of
concerned, the changes have happened and the 686,000, this broadly puts it in line with the
opportunity is here to innovate and “build back national average at 4.79 sq ft per person.This
better”. however, is largely concentrated in the city
centre, with the out of town retail parks in
With prime retail yields no longer at 5%-6% in South Gloucestershire and North Somerset
Bristol and more on a par with secondary retail excluded from the data.
markets, which are driven by different
dynamics, the sector could present a very The data coming out of the city centre
attractive investment market to those willing to understandably does not make great reading
take a chance. and we expect the retail offering to contract
over time as needed (if planning allows) to a
The driving forces behind the resurrection of sustainable level of circa 3 sq ft per capita. This
prime retail will, in our opinion, be governed by is based on the amount of retail space per
the net difference between the willingness of capita in more technologically advanced
commuters to return to the city and the balance countries in the Far East. This is likely to lead to
between city centre residents moving out to a greater centralisation of retail services, with
find more space versus London relocators. A secondary inner city locations becoming barren
growing population will ultimately lead to more of all occupiers.
demand for retail and, in particular, leisure.
UK Bristol
4.6 sq ft 4.79 sq ft
per per
capita capita
Secondary retail is a much simpler
conundrum to answer, albeit much harder to
solve. Simply put, short retail parades in
densely populated areas, be they affluent or
not, have survived. Long parades, such as
Church Road (St George), Fishponds Road
and the northern part of Gloucester Road are
littered with empty shops. The longer the
retail parade, the greater the variety of
retailers required to make the area
prosperous and diverse. As online retail has
eroded the viability of many retail types, the
pool of retailers has diminished. It is
therefore beholden on the local authority to
present a sustainable and speedy
Cabot Circus will remain the hub for prime transformation of our secondary High Street
retailers, whilst The Galleries and Broadmead to give greater flexibility to landlords in some
will suffer.Footfall is also shifting with the areas whilst protecting the core elements of
recent new bridge from Finzels Reach to the parade.
Castle Park and the substantial mixed used
development in Redcliffe Village is likely to ETP has had great successes during the two
redefine where retailers want to be. This may most recent lockdowns in the more
be to the detriment of areas such as Park secondary areas of Bishopsworth and
Street, where rents have already fallen Hengrove where, due to the popularity of the
substantially, and the Horsefair area round to locations, we have held “open mornings”,
Quay Street. It is also expected that leisure such is the demand.
operators will consolidate their offerings
around King Street and the Harbourside,
rather than Corn Street, as there is more
outdoor space and, on the whole, lower
service charges.
Vacancy Rate up 1.50%
Net Absorption Rate down
78,000 sq ft
Average Market Rent £22.62
Market Yield 6.90
OFFICES
Office occupiers appear to be polarised in their The net result, regardless of your point of view,
approach to physical office space. Whilst the likes will be a reduction in demand for space from large
of David Solomon and others have rejected corporate occupiers. That said, with more start-
remote working, there are plenty of advocates for ups and home workers looking for a small and
a more flexible arrangement.Employees are cheap office on flexible terms, demand for
equally polarised, the introverts and ambiverts are secondary accommodation and co-working is set
craving face to face conversations, whilst self- to experience a small renaissance.
styled visionaries (and those fond of working in
pyjamas) have been campaigning for greater ETP has noticed increased levels of enquiries for
home working. Internationally, the debate is not single room offices on flexible terms in suburban
homogenous across sectors with Pinterest offering locations. Occupiers are driven by the need to get
$90m to end a new lease obligation early and away from the kitchen table but do not wish to
Facebook taking a new lease in New York. have to commute to the city centre or out of town
office parks.
In the UK, Bloomberg has reportedly been offering
£55 a day to encourage staff to come back into the
office. Similarly, an office occupier in Bristol
agreed to hand back 25% of their office space and
undertook all the required work to return the
accommodation to the landlord in shell condition
only to find more staff wanted to return than
planned. Needless to say, the landlord was
delighted to re-let the space.
SECONDARY
OUTPERFOMRS
PRIME
In addition, with the continuous growth of online services
has come the need for more online service support staff.
Although working from home is possible, it does come with
difficulties. Most recently we have acquired 6,000 sq ft at
Aztec West for a call centre service. The principal driver
was the need for parking, such that staff did not have to
rely upon public transport to travel to work. Whether this
factor will remain as the vaccine roll out continues is
unknown, but for our clients and their staff, it was a
motivating factor.
Fortunately, in Bristol we do not have an office market
dominated by skyscrapers. Elsewhere in the country, office
occupiers are unlikely to return to work if they know they
cannot use a lift and must climb 15 flights of stairs to pop
out for a sandwich. As such, vacancy rates are likely to be
lower in our city as our offices are rarely above five floors.
In the city centre, vacancy rates have, as expected,
increased from 6.23% to 7.87% of total stock, although still
remain below the 10 year average of 11.21%. Perhaps more
surprising is that rental growth has remained relatively
constant at 5.3% pa compared to a 10 year average of
5.90%. That said, this hides a myriad of incentives, and we
are aware of recent lettings where rent free periods of 30
months plus have been offered for a longer lease certain.
The story in Greater Bristol, which includes Clifton and
other residential suburbs, but not out of town business
parks, is somewhat rosy by comparison. Vacancy rates
have fallen to 1.37% from 2.63% of available stock over 12
months and well below the 10 year average of 4.91%.
Annual rental growth is subdued, but positive at 1.90%.
Overall, with Bristol’s strong creative, media, professional and tech sectors, we are of the opinion
demand will return and bring life back to the city as these sectors both require innovation and
collaboration, two skills that are best done face to face.
That said, a recent study by MIT found centrally positioned, densely populated and multi-disciplinary
spaces would create hotspots of collaboration, compared to geographically dispersed colleagues, but
the need to be densely populated in an office is not a requirement. Also, to end on a positive, recent
research has suggested that meetings online are now 12% shorter than their physical predecessors, an
efficiency gain all employers and employees should relish.
INDUSTRIAL
MARKET
Average Rents up
28% to £7.47 psf
The industrial sector remains the “golden child” of ETP have recently advised on the sale of Unit 2
the commercial property market. Riverside Business Park, which achieved £114 per
sq ft, whilst the team has also let a secondary
After years of languishing rents, the sector has seen warehouse in Bedminster for £7.61 per sq ft.
stratospheric growth. The drivers behind the surge Demand continues to be strong in the secondary
in industrial demand are all too obvious to any of us sub 5,000 sq ft market from both owner-
with an Amazon account during lockdown and the occupiers and tenants. Most notably, interest
sheer number of vans trolling our streets is comes from occupiers looking to expand their
testament to Bristol’s spending capacity .However, operations due to growing order books and a
for how long can this continue? Manufacturing switch from physical to online retail. Also,
output fell for the first time in nine months in cheaper finance for acquisitions has driven
January, although, manufacturing confidence (PMI) demand from former tenants looking to reduced
remains above 50, suggesting confidence remains their overheads as rents spiral.
and the market is unlikely to contract. The drop
could be superficial, due to lockdown and spikes in Another factor that is specific to Bristol, and
Covid cases shutting production, or manifestly more cannot be ignored, is the Clean Air Zone
structural as a result of Brexit slowing imports of (CAZ).The City Council have until the 29th
raw materials. October 2021 to have a CAZ in place. A plan to
charge motorists who drive the most polluting
Rents have increased in the Bristol Core market cars £9 a day have been submitted to
(which includes Avonmouth) from a five year Government and the City Council hopes to
average of £5.85 per sq ft to £7.47 per sq ft, a 28% rollout the plan over summer 2021. The current
increase. Sales values have seen stronger growth, proposal will apply to approximately a quarter of
now averaging £94 per sq ft, a 45% increase over the all motorists.Not only is the additional cost a
same period. The investment market has also further blow to business during Covid, but also
followed suit with yields compressing to the lowest the additional drive time of avoiding the city
annual average of 6.38% over the last five years. centre trunk roads. Notwithstanding the CAZ, the
supply shortfall and increasing demand is
unlikely to knock the puff out of the industrial
market, even if drivers are charged more and it
takes longer to move around.
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