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Commercial Property News For The South West - October 2011
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Backing Bristol
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| There are signs that Bristol is heading for an improved office market that will put it back in the spotlight as one of the top regional cities. The growing shortage of Grade A space indicates that speculative schemes could be once again on the agenda and that rents will respond. At the moment, said Simon Price of Alder King, “the city centre is polarised around a considerable amount of empty second hand space that is unlikely to be let in the near future.” The likelihood is that space will be refurbished for a variety of uses and in some cases demolished for new schemes. “We now have five or six active enquiries for sizeable amounts of space of between 2,323 and 6,503 sq.metres (25,000 and 70,000 sq.ft.) and believe the growth prospects are good for the next 12-18 months,” Price said. He has two clients examining plans for new development, a sensible policy given that supply of Grade A is only sufficient for just over a year. As far as rents are concerned, the top rate is £296 a sq.metre (£27.50 a sq.ft.) which will now apply to new schemes. The expectation must be for incentives to narrow. Although take up declined by 47% to 8,0822 sq.metres (87,000 sq.ft.) in the second quarter, there was, said DTZ, “greater interest in highly specified Grade B which offers more options and flexibility for mid sized professional firms.” The consensus is that take up will be around the same level as 2010 although this could be beaten if Axa take the sizeable amount of space they have indicated they need in the future. Indeed the financial sector was more active with some firms seeking space that they can grow into. The investment market reflects the improving situation “with a tentative equilibrium at the prime end and a contrast with the secondary properties which will be re priced.”
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Cubex buys in Glastonbury
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| Cubex has bought the 30 acre Morlands Enterprise Park, Glastonbury from the South West RDA funded by Palmer Capital and the Beckley Island Regeneration Trust (BIRT). Situated on the edge of Glastonbury and close to Street, the former tannery site has a number of blue chip clients such as Screwfix, Avalon Plastics and Thompson Group. Cubex has also bought the residual land for further development. Peter Walford of Cubex commented: “We already have a number of enquiries from people interested in taking space and expect to announce new deals in the near future. The purchase has been funded through our principal funding partner, Palmer Capital, and follows on from the successful model established at our Bath Business Park.”
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Efficiency beckons
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| Savills estimates that a staggering 6.5 million sq.metres (700 million sq.ft.) of commercial floor space may need to undergo an energy efficiency overhaul by 2018. Of this total, 538,220 sq.metres (5.8 million sq.ft.) is in Bristol. The analysis is based on the impact of the Private Rented Sector Regulations which form part of the 2011 Energy Bill. Michael Pillow of Savills said: “If the legislation goes through, leasing of a sub Grade E standard property will become unlawful from April 2018”. The advice is to go beyond basic levels of refurbishment to make properties easier to let because companies are increasingly attracted to greener buildings. The chances are that this will lead to higher rents as well as making it easier to let. Even so, Savills’ warning is a real scare at a time when letting markets are in deep trouble.
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Swindon more active
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| Eduserve is to use Jones Lang LaSalle (JLL) to promote its 3,437 sq.metres (37,000 sq.ft.) data centre in Swindon. This means promoting the dedicated customer data vaults to a wider business audience. JLL’s Charlie Carden said: “The centre has the ability to deliver bespoke customer solutions within an established facility from a proven provider of IT services.” It comes at a time when the Swindon office market is struggling to break out of the recession. Jeremy Sutton of Keningtons said: “The office market has become a bit more active and there has been an increase in viewings in the current quarter.” He noted that there has been an increasing workload on lease renewals, which will become increasingly important in the future as the 25 year leases of the 1980s run out.
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In Brief #1
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| Richard Wright of Colliers International has moved from the Rating Department to the National Offices Team in Bristol. He is working alongside office specialists Steve Lipfriend and James Preece and is involved in a number of disposals and acquisitions for local and national clients. Richard is a member of the magic circle and is well known to the Bristol surveying world as a regular performer at corporate events. His move will add valuable support to a challenging market where making office space disappear would certainly please many landlords!
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Reaping the benefifits
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| One developer that clearly believes in the prospects for growth in Bristol and the positive outlook for new schemes is Salmon Harvester. Together with NFU Mutual, it has now bought the 0.3 acre Three Glass Wharf site on the waterside at Temple Quay from PWC, the Administrators, which is within the upcoming Enterprise Zone. There is an existing planning permission for a mixed use scheme of 12,077 sq.metres (130,000 sq.ft.), including offices, retail and residential. Rorie Henderson of Salmon Harvester said: “The purchase is a further endorsement of our confidence in the city centre market in Bristol and follows our purchase of Two Glass Wharf last November.” This adjacent site, which has been close to a pre let deal, can accommodate a similarly sized scheme to Three Glass Wharf (which, if built, alone would have an investment value of £40 million) and could be combined with the new acquisition for a larger project. Axa was negotiating for a pre let on Two Glass Wharf which, had it been completed, would have been the largest in the south west at 6,503 sq.metres (70,000 sq.ft.). The insurance company wanted to bring its staff into one building, but has now decided to review its space requirements. Salmon Harvester had been one of the investors in the original Castlemore scheme for Glass Wharf and paid £5 million for the Two Glass Wharf site. Another strategic site which will provide one of the largest development opportunities in the south west is coming onto the market in the shape of the University Hospital Bristol NHS Trust’s General Hospital. The city centre 3 acre site has 17,465 sq.metres (188,000 sq.ft.) and will be vacant next year. Bristol is the fourth cheapest city in the UK at £4,410 per workstation, above Leeds in fifth spot. DTZ’s Philip Morton said: “Once again Bristol features as a good value for money location in terms of overall business cost. Occupiers continue to look at the cashflow over the length of their lease which will become critical when the International Accounting Standard 37 affecting lease accounting comes into operation in April 2012.”
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Creative in Bath
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| Bath is also due for a substantial new development through St James’s Investments and Tesco. The £50 million mixed use scheme on the site of the former Bath Press site has been modified to increase the amount of commercial space. The new proposal is for a Tesco store, 4,554 sq.metres (49,000 sq.ft.) of creative work units, 2,834 sq.metres (30,500 sq.ft.) of offices and 10 residential units. This would make the joint venture the largest provider of
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£50 million Exeter project
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| Exeter is in line for a major development with Network Rail seeking a partner for a £50 million project adjacent to Exeter St David’s. The 6 acre site could support more than 13,935 sq.metres (150,000 sq.ft.) of mixed use space together with a better transport interchange to mate in with Network Rail’s work on the station. There will also be a new public park. The likelihood is that the scheme would have student accommodation, offices and a hotel. Network Rail’s plan is to fund the scheme by passing the freehold, or a long leasehold, onto the developer once two parts of the project are completed: the multi storey car park and the train crew accommodation.
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In Brief #2
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| Summerfield Developments has acquired 4 office buildings totalling 1,632 sq.metres (17,567 sq.ft.) at Vantage Office Park, North Bristol. There is just one office suite empty at the moment. Summerfield’s Phil Wade said: “The deals represent part of Summerfield’s long term strategy of investing in well located properties in the south west.
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Cashing in at Cabot
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| The Crown Estate is cashing in on the successful Cabot Park, Avonmouth by selling a third share to Axa Real Estate acting for a client. The 33 acre site will be developed by the Co-operative group as a regional distribution centre. The Crown Estate will retain the other 64 acres on the park, which is used by Honda for storing its vehicles. The park was developed by a joint venture of Gallan and Stoford with DJ Deloitte acting for the Crown Estate. The Crown’s regional portfolio includes shopping centres, retail parks, industrial estates and business parks across the UK. Its portfolio is valued at over £7 billion. Avonmouth is at the heart of an active industrial market that benefits from good transport links. This brings a steady stream of deals, such as Flights Hallmark taking 3,467 sq.metres (37,317 sq.ft.), through Lambert Smith Hampton (LSH), in Silverton Investments’ Port Edward Centre. The building will be used by a fleet of buses serving the region. LSH’s Tim Beare commented: “The Port Edward Centre is now a fully occupied estate, further demonstrating that Avonmouth continues to be a target destination for a broad range of high quality occupiers.” The strength of the Avonmouth market makes refurbishments such as the Croudace Properties’ unit at Third Way Corner (which is being marketed by DTZ and Jones Lang LaSalle), profitable. Research by DTZ shows that the south west has the smallest amount of industrial space available in the UK, now below 10% of total availability. The firm’s Philip Cranstone said: “The refurbishment of the unit is a good example of the emerging Grade B battleground in the south west and results in some of the best quality refurbished space in Avonmouth.” A foretaste of how the market is going is provided by Central Park, Bristol getting its first pre let with the pallet distributor CHEP taking 4,645 sq.metres (50,000 sq.ft.) for a 15 year lease. It will be operational in the second quarter of 2012.
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Looking at enterprise
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| Viability of the Bristol Temple Quarter Enterprise Zone has been improved by the inclusion of residential development. That is the view of Gordon Isgrove of GVA, saying that the Enterprise Zone should look to Bristol’s Harbourside for inspiration on how to achieve a 24 hour city. Isgrove said: “The new Enterprise Zone has laid out a vision of being a hub for creative and digital industries. I should urge those planning the zone not to overlook the benefits of including an element of residential use to create truly mixed use and creative development.” In his view the success of the zone will not only be the number of jobs it creates but also the establishment of a sustainable city quarter where people want to live and work and prove an attraction to property investors over the long term. The zone will play an important part in the growth of the city because it aims to create 17,000 jobs over a 25 year period, although some doubt has been cast on whether this can be achieved solely with creative and digital industries. That said, the letting of space in Bush House, one of the most prominent buildings in Bristol, to Yucca, a digital marketing agency, indicates a demand from that sector even if it has taken a small amount of space. Ben Martin of Yucca commented: “Bristol has been establishing itself in the past few years as a creative hub for the digital media.”
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In Brief 3#
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| Orchard Street Investment Management has paid Doughty Hanson £80 million for the 13,000 sq.metres (139,880 sq.ft.), 48 unit, Old George Mall Shopping Centre, Salisbury for a yield of 6%.
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Branson
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| There is renewed confidence in the region’s commercial property market with offices in Bristol leading the way. The prospect is for speculative development to return and rents move higher. In some ways this is not surprising because the city had moved significantly up the regional league in the past decade or so. But it is feeding off the strength of the local economy with its wide range of activities and strong high technology and defence sectors. It is worth remembering that these fundamentals influenced the pioneering development of Aztec West decades ago. There is, in fact, a good balance between the out of town business parks and the city centre, where the financial and professional firms are concentrated. The whole process has been helped by the positive and business friendly approach of the local authorities. The well developed transport system continues to underpin the industrial market which is in fine fettle. That also applies to investment where there have been a number of sizeable deals. The attractions of the region are indicated by the sale of the Morland Enterprise Park to Cubex with funding from Palmer Capital and the Beckley Island Regeneration Trust. What that shows, as does the sale of the Old George Mall, Salisbury is that funds are available if the deal is attractive.
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