Bristol has moved from being one of the star performers in the UK commercial property market to a position of low demand and a plentiful supply of Grade A offices.

But the situation is set to improve as the economy picks up and the south west’s assets of fine cities and high technology industries, led by defence and aerospace, become more important.

This can be seen from the latest Markit report on the south west with the Business Activity Index jumping from 53.8 in January to 57.4 in February making it the tenth month of improvement. Even so it is behind the wider UK economy. Shane Vallance of the South West RDA commented: “It is reassuring that the survey indicates that businesses have recovered strongly since the adverse weather effects we noted last month. The increase in new manufacturing orders from abroad gives further weight to signs that the weak pound is now beginning to help some of our exporters.”

Like other major regional cities, Bristol faces tough competition from European cities and the answer, according to a recent seminar run by the British Property Federation (BPF), is for them to have more power to raise finance.

Andrew Gould of Jones Lang LaSalle said: “The challenge to British cities has never been more acute. Occupiers, money and talent are more mobile now than ever and cities need clearly focused strategies that play to their strengths. There are some great regeneration and renewal proposals, but delivery is the biggest challenge.”

In the case of Bristol, there has been a marked improvement in the quality and size of the city centre offices which proved markedly successful in the past few years. The city has plenty of improvement plans but needs the finance to get them built. The current situation is that speculative office and industrial developments have dried up but certain areas of activity are expanding, notably recycling of waste products such as plastics and glass. This means new industrial properties, plant and equipment.

St Modwen has progressed its £270 million Firepool scheme in Taunton, Somerset and has now published the first designs. This is the first part of an ambitious £500 million development, named Project Taunton, which will provide offices of 46,450 sq.metres (500,000 sq.ft.), over 400 residential units, shops and leisure facilities. St Modwen expects to commence construction towards the end of 2011 on the 123 acre site. In the past year St Modwen has been reducing its development programme though it still has a substantial number of schemes that can be started when the economy improves.

One of the Bristol sites earmarked for a mixed use development is Terrace Hill’s Canningford House which will have offices and 10 flats. Until it is developed the building is being let and Terrace Hill has now got the occupancy rate up to 90% with a recent letting to Turning Point, a social care organisation.

Adam Pratt of Terrace Hill commented: “In securing short term income of this office building we are well positioned to bide our time in finalising plans for a city centre regeneration project and capitalise on the upturn in the market cycle.”

One of the latest development proposals is for the mixed use scheme at the Sainsbury store on Winterstoke Road. It has applied for outline planning permission for 143 residential units; 4,998 sq.metres (53,800 sq.ft.) of employment space and 600 metres (6,456 sq.ft.) of retailing.

At the same time there is a an application to redevelop the Bristol City Football Club ground on Ashton Road for a Sainsbury food store, including a petrol filling station and car wash.

The development is likely to come before the planning committee in June after the local elections. In the past there was considerable local opposition to the building of a Tesco store on the football ground. On the other hand the substantial mixed use project on the Sainsbury site is likely to be welcomed.

Another aspect of the plans would be an arena adjacent to a new Bristol City ground at Ashton Vale. Until two years ago there had been plans for an arena close to Temple Meads railway station, which is considered by some locals as being more suitable because of being close to the city centre.

The Crown Estate has widened its investment programme and bought a 50% stake in Land Securities’ 49,237 sq.metres (530,000 sq.ft.) Princesshay Shopping Centre in Exeter. It has paid around £100 million which is a yield of just over 7.5% for the centre which was valued at £225 million three years ago.Essentially the Crown Estate is rationalising its property portfolio by selling off what it considers to be non core assets in London and putting the proceeds into regional cities.

It has been a tough period for the industrial property market but the recent signs are for a return of confidence, mainly because of the looming shortage

of prime, mainly large, buildings. “There are some areas where we could run out of industrial property,” said Jeremy Hughes of BNP,” and where the choice is whether to take the design and build route.”

While he notes the improvement in sentiment, Hughes suggests that a faster recovery will not occur until later in the year, after September.

In the meantime, the announcement of a new National Composites Centre on the SPark, the Bristol and Bath Science Park, is of huge significance for the region and recognises its network of high technology companies. The 6,503 sq.metres (70,000 sq.ft.) building will be designed to provide open access facilities for the design and manufacture of high quality composite products which are used in the aerospace, automobile and wind turbine industries.

The £25 million plan, which is publicly funded, is to have 200 leading industry researchers and academics based at the centre working to speed up the production of new materials.

Speaking at the launch event, the Business Minister, Ian Lucas, said: “The National Composites Centre will play a major role in maintaining the UK’s position in the development of composites.”

The roll call of companies that have signed up for the new centre is impressive and includes Airbus, Rolls Royce, Vestas and GKN and they have been recently joined by Agusta Westland and General Electric.

Another important scheme is New Earth Solutions and St Modwen’s plans for a recycling facility on the site of the former Britannia zinc factory in Avonmouth. Thomas Maltby of King Sturge said there had been a substantial growth of waste recycling operations in the south west, partly on the back of contracts such as with Tesco. “The New Earth facility will be a biomass energy producer,” he said.

As far as the industrial market is concerned, Maltby said there was a shortage of land and because of financial constraints, little speculative activity. So the focus has been on refurbishment. There is also a shortage of freehold buildings (demand has picked up again for these).

In an improving investment market, Terramond has sold a 2,155 sq.metres (23,200 sq.ft.) industrial unit on Poplar Park, part of Cabot Park, Avonmouth, to Courts Nominees.

The property was let last year to PHS Datasafe and PHS Teacrate for 20 years and is one of four units on the
development. Other deals were with DX and Burtons Go Bananas. There is only one remaining unit of 4,120 sq.metres (44,345 sq.ft.), Unit D.

Huw Thomas of Terramond said: “The final unit is the only new warehouse in the Greater Bristol area of less than 9,290 sq.metres (100,000 sq.ft.).”

Another report from CBRE showed that the major regional cities, including Bristol, have become more attractive for investors. CBRE’s Andy Sayner said: “The report highlights the importance of the investment market in leading the way towards recovery in Bristol and we have witnessed a market increase in investor appetite in prime assets which is impacting substantially on prime yields.”

If it is given government approval, the plan for a new deep sea container terminal at Avonmouth by the Bristol Port Company will bring a shot in the arm to the industrial market. This will be constructed on the site of the former oil terminal and will be able to accommodate the existing large container ships and future generations of even bigger ships.

The plan is:

• 1.2 km of quay with 10 gantry cranes;
• Creation of 4 deep water berths;
• A capital dredge of the Bristol Channel to provide an adequate approach channel;
• Over 100 acres available for container handling and storage with a terminal capacity of 1.5 million TEU (containers)
• New links to the existing rail network.

Also in Avonmouth, Bericote Properties has joined with AstraZeneca for a £140 million distribution park on an 85 acre site adjacent to the pharmaceutical company’s existing plant. The 139,350 sq.metres (1.5 million sq.ft.) scheme will feature an ecological protection zone. Bericote is already in advanced discussions for a pre let.

The focus at the park is on recycling companies (as we have seen, a growing presence in the south west), food retailing and port related industries. Supermarket groups like the Cooperative and Morrisons have known requirements for large sheds.

Bericote is also planning a development of distribution sheds on land owned by the French company Rhodia in the area.

Some encouragement for a more positive view for the Bristol office market has come with a recent letting through GVA Grimley to the Chartwell Group. It has taken 1,598 sq.metres (17,200 sq.ft.) at Kings Orchard, Castle Park and will be moving staff into the property from across the region.

Guy Williams of GVA Grimley said: “This letting is a very positive start to 2010 for Bristol. We are beginning to see renewed occupier confidence, with a higher number of quality enquiries in the city centre which we hope will lead to lettings.” Kings Orchard has recently been extensively refurbished to a higher quality of space with a meeting room, a gym, café and catering facilities. The head tenant is the law firm Bevan Brittan. Catherine Collis of Alder King said: “One of the problems in Bristol is the wide gap between the prime offices and older space (of which there is plenty). At the moment we are encouraging occupiers to consider design and build options for new offices. Companies cannot stand still and will need to take new space as they grow.”

One of the interesting facts to emerge from research by CB Richard Ellis is that Bristol has retained a world top 50 spot for most prestigious locations while remaining one of the most competitive cities to rent office space in the UK.

According to CBRE, total occupation costs in Bristol are£409 a sq.metre (£38 a sq.ft.), putting it in 37th spot in the world league. That is just below Leeds. CBRE’s Peter Martin commented: “Some of the world’s best office locations are included in this report and it is excellent news that prime office accommodation costs in Bristol are lower than many of our UK rivals. That should help attract new business in the future.”

One lively market in the region, according to Huw Thomas, Partner of King Sturge, Bath office is mid Somerset. He said: “Towns like Frome and Glastonbury have been active and good for us. Bath is more difficult though we have enquiries for offices of up to 1,858 sq.metres (20,000 sq.ft.), mainly from local law firms.”

For industrial property in Bath, the demand is for roadside frontage for small units, either standard manufacturing or auto use.“The strongest sector in the property market is accommodation for the city’s two universities,” Thomas said.

From being the star performer among regional cities in the UK, Bristol has slipped to a more stable and quieter situation.

Yet the advantages of the region have not disappeared overnight and a number of plans show that there is still considerable scope for growth. For a start there is the plan for a vast new container terminal at Avonmouth to address the national shortage of such facilities.

There is also the plan for a major new distribution park at Avonmouth on an AstraZeneca site. This will help to even out the supply of prime industrial property.

Perhaps the most impressive development for Bristol is the facility for National Composites, becoming part of a growing network of such manufacturing and research facilities which will include Ansty, Coventry later this year.

That underlined the credentials of Greater Bristol for high technology companies, notably aerospace and defence. Few would argue that these constitute the future for the region. Here we have new technology where the UK is making the commitment with new research facilities.

The city centre office market is more problematic, although also showing signs of revival. The inherent advantages of Bristol and its fine transport links, together with the perceptive development of the harbour, will surely rule in favour of renewed growth, though possibly not until after September.