Looking at enterprise

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.”

Cashing in at Cabot

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 wasdeveloped 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.

Reaping the benefits

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 as 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.”

Backing Bristol

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.”

Space shrinks

Bristol’s industrial and distribution market performed strongly in 2010 with 193 transactions totalling 213,670 sq.metres, the highest total since a peak in 2007. The driving forces were improved manufacturing and distribution space for retailers.

Chris Miles of King Sturge, Chairman of the Western branch of the Industrial Agents’ Society, said: “The industrial and distribution market in Bristol remains relatively buoyant. It is very encouraging to note that the UK manufacturing sector finished strongly and indeed the last quarter of 2010 saw it record its best trading conditions for 16 years.” DTZ’s Simon Lloyd said: “The South West continues to have the lowest availability of stock in the UK with a limited amount available to occupiers.

The market was, however, buoyed by a number of larger transactions in retailers Morrisons and the Co-op but these were land acquisitions.” Avonmouth is the key location for distribution which is why the Co-op wanted a distribution facility here. This is now being funded by AXA Real Estate Investment Managers. The 40,412 sq.metres scheme is being developed by Stoford and Gallan Group. Stoford’s Dan Gallagher said: “In the current economic climate, forward funding is one of only a few forms of development capital available and we are pleased to work with AXA and continue our long term relationship with the Co-op Group.”

Creating jobs

While sentiment in manufacturing is stronger than for over a decade, there is some hesitation among economists about its effect on employment. In the case of Bristol, Oxford Economics expects employment to be negative for 2010 and 2011, mainly because of the loss of public sector jobs.

The argument is that the service sector is not picking up fast enough to help with employing people who have been made redundant by the government. Oxford Economics looks for a solution in expanded consumer spending and investment.

This might be too gloomy a picture for a region like the South West where a combination of high technology companies, top educational establishments and good environment bring their own impact on the economy.

Law firm pre lets

The demand for space from law firms is confirmed by Cameron McKenna taking 2,449 sq.metres (26,328 sq.ft.) in Crest Nicholson’s 2 College Square, Harbourside.

That is the largest pre let in three years and confirms the top headline rent at £296 a sq.metre (£27.50 a sq.ft.).

Crest Nicholson’s Ian White made the point that the rent free period was in line with other recent schemes but (more importantly) Bristol is not over supplied. Construction on the new office, which allows the law firm to move from a smaller property, is due for completion by the end of the year. The developer now has only 6,503 sq.metres (70,000 sq.ft.) of offices to complete on the site.

Brunel would like it

The first stage of the regeneration of the historic area around Temple Meads station has been completed by TCN with Bristol & Exeter House (B&E House).

Originally the headquarters of the Bristol and Exeter Rail Company, the Jacobean style property has become a boutique office aimed at catering for a mix of start ups, young and entrepreneurial companies that require a high level of service. Although small at 1,394 sq.metres (15,000 sq.ft.), its attraction is shown by the early leasing of close on 25% to Amonite, a film company, and Cross Country Trains.

Richard Pearce of TCN commented: “The vibrant brand profile that B&E House creates will attract a wider audience of office and leisure tenants to the site facilitating our vision for the whole scheme.”

Pearce created TCN in 2006 in partnership with TCN Urop of the Netherlands. The expansion moved up a gear when it bought Express Parks Development the following year and it started the policy of introducing the European model of developing and managing innovative real estate projects in conjunction with private and public partners.

Aerium sees the chance

Far from being in the doldrums, Bristol is attractive enough to pull in a major investment dealfrom a European fund. Aerium, the European fund manager, has paid the Administrators, PWC, £83 million for One Glass Wharf, Temple Quay. The property, completed in 2010 is a sizeable 20,083 sq.metres (216,172 sq.ft.) of prime offices on five floors and is 81% let to the law firm Burgess Salmon for 20 years. Provide the top quality buildings, and investors will buy.

The empty space is subject to a seller’s guarantee of over 5 years. Now DTZ and Alder King will market this space. FranckRuimy of Aerium said: “This is a significant purchase outside the central London market of a very high quality, trophy asset. All core UK business markets are beginning to show a reduction in the supply of prime stock coming onto the market, which still further supports the underlying demand for space in this type of asset and therefore steady rents.” The fund is backed by Middle Eastern investors.