More space needed in Bristol as almost third of all new offices under construction in the city pre-let

Trinity Quay Bristol

Bristol’s occupier market saw an extremely strong first quarter of 2022 with the city seeing the highest take-up of office space across Avison Young’s Big Nine regional markets.

The real estate adviser has released its Big Nine report for the first quarter of the year, which shines a light on Bristol with take-up exceeding the 5-year average by 62 per cent. Whilst most UK markets saw activity fall below average levels, Bristol, together with Cardiff and Newcastle, were notable exceptions.

And with occupiers’ preference for Grade A office space, combined with the limited supply in Bristol city centre, there has also been significant rental growth in recent years, continuing into the first three months of 2022. Prime rents increased by more than ten per cent to £42.50 – reflecting the highest rental tone within the Big Nine regional office markets.

Avison Young Director, Paul Williams, said: “The occupier market in Bristol city centre experienced a strong end to 2021 which saw the highest quarterly take-up levels since Q4 2016. The city has recorded the highest take-up across the Big Nine markets in the first quarter of 2022, yet this is still six per cent below Q4 2021.

“The city has seen two of the UK’s key deals this quarter, underpinning the city centre’s total take-up of 234,275 sq ft. The largest of these was a 54,767 sq ft letting to Paymentsense at CEG’s speculative development, EQ, while at Halo, Finzels Reach, Deloitte leased 22,500 sq ft.”

The financial services sector was the largest source of city centre demand during Q1, accounting for 36% of total take-up due to the large deal for Paymentsense. The professional services and TMT & creative sectors were also significant sources of demand during Q1, accounting for 33% and 26% of take-up, respectively.

“As a result of the strength in the market, we’ve seen office availability reduce by 20 per cent and now totals just 619,000 sq ft, eight per cent below the five-year average,” Paul added. “As a result, the vacancy rate has also reduced and now sits at 4.7 per cent, still low by historical standards.

“There is continued development appetite with several schemes onsite. Yet out of the 675,000 sq ft under construction, 30% has already been pre-let.

“Underpinned by its strong economic fundamentals, the city continues to be a magnet for occupiers who want to be at the heart of this vibrant city.”

Buildings under construction include CEG’s 184,000 sq ft EQ, the 207,000 sq ft Welcome Building and the next phase of Assembly, Assembly B&C (120,000 sq ft). In addition, 1 Portwall Square, Halo at Finzels Reach and CARGO work are all due to complete this year.

The strength of activity continues in the out-of-town market, which was 76% above Q4 2021 totalling 102,133 sq ft. Key deals included Lysander Law which leased 19,333 sq ft at Aztec West, Edwards Ltd, which took 18,705 sq ft at 1 Rivermead Court, Clevedon, and Acacium which let 10,680 sq ft at The Pavilions. Out of town headline rents remain steady at £23.50 per sq ft.

Investment market in Bristol

The strength of the office occupier market is reflected in the investment market. Overseas investors dominated office investment in Q1,  accounting for almost three quarters of total spend across the Big Nine markets.

In Bristol, US Investor Barings acquired the Soapworks offices scheme on Straight Street for £126 million. The Soapworks project will comprise two new buildings alongside the restoration of the Grade II-listed former soap factory, with planning consent for 154,000 sq ft of flexible office space as well as 243 build-to-rent apartments, hospitality, and leisure space.

The acquisition at Soapworks is the second largest Big Nine investment deal this quarter, accounting for 25% of the market. The largest investment was in Glasgow, with Spanish investment firm Pontegadea Group purchasing 177 Bothwell Street, Glasgow at the beginning of March for circa £215 million.

“Future proofed, well-located, good quality assets with a strong tenant base proved to be popular, particularly those that meet net zero carbon investment criteria, promote occupier well-being, and fulfil expectations for positive rental growth,” explains Avison Young Principal, Richard Howell.