With the economy strengthening across the UK, the outlook for the Bristol property market is looking very positive, with growth across the majority of sectors in the city.
Mark Sheridan, head of our Bristol office comments on the state of the residential and commercial property markets in Bristol.
In particular, there is increasing demand for office space in Bristol with headline rents predicted to reach £30 per sq ft in the near future. Financial and professional services continue to drive most of the demand for city centre space, but increasingly, Bristol is seeing a boom in the creative and tech sectors. This means that more companies are looking for studio and loft-style office space.
The Pithay Studios development is a good example of the growing demand in the creative and tech sector. Resolution Property was open about the fact that demand from these industries prompted the acquisition and the associated refurbishment of 120,000 sq ft of creative offices, co-working space, an art gallery, restaurant/bar and gardens, with an application also submitted for apartments on the top floor. Other established schemes include Engine Shed hub, with its Boxworks component specifically aimed at creative industries, and Paintworks, which bills itself as ‘Bristol’s Creative Quarter’.
But now there is very little space available within these self-styled creative hubs, with limited short term supply coming to the market resulting in a supply – demand imbalance. The issue for many developers in this sector is the lack of well-secured long term rental income that isn’t offered by smaller growing companies or start-ups which require flexible space, and which in turn results in higher tenant turnover.
Whether it is in the traditional professional services or new tech and creative start-ups, we are now in a position where there is less and less that meets the needs of those looking to buy or rent office space in the city centre.
One of the factors contributing to this is the fact that in recent years, lower quality secondary stock has been converted from offices to residential property or student accommodation rather than being refurbished. In fact, Bristol has the highest rate of office to residential conversion of any city apart from London in recent times, and the housing supply is still running short.
While the answer to this could lie outside of the city centre in areas such as Lyde Green to the north, or large brownfield sites such as the Filton Airfield, there is still strong demand for student and private residential development, confirming Bristol’s enviable status as a city where lots of people want to study, live and work.
This means that converting older office space to residential is an attractive option for many. Particularly whilst Permitted Development Rights for office to residential conversion remain in place the planning process is simplified which also reduces development cost, timescales and ultimately improves viability.
While this is good news for companies who want to tap into a talent pool right on their doorsteps, it is causing a headache for those looking to locate in the city centre with many graduates and young professionals priced out of the market. With many conversion schemes also going to student-use, we need to ensure that we are striking the right balance.
In fact, there is strong evidence that refurbishing office space can have excellent results for office lettings, with some secondary stock and refurbished properties seeing rents grow to £25-£28 per sq ft – not far behind new build rates. Capital value rates are also comparable for office and residential use in many areas of the city with this seeing some focus turning back toward office development, particularly in the most desirable central locations and where there is significant demand from tenants with good covenant strength.
So, should we be putting more energy into speculative office development and conversion to feed a growing tech and creative industries sector or play it safe with traditional institutional office led investments? Or do we need to invest in further residential conversion and development?
Ultimately, property developers will naturally look for the highest returns and with the majority of investors being institutional funds and property companies, this means well-secured investments with long leases – which may dictate the direction of the market. Whether the increase in office rental and capital value returns will have a negative impact on residential provision, or whether the trend for converting commercial space to residential will continue also remains to be seen. The good news is that developers in both the residential and commercial property sectors support further development in Bristol.