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.

£50 million Exeter project

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.

Creative in Bath

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 workspace for artists in Bath.

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.”

Swindon more active

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.

Efficiency beckons

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, 538,220sq.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.

Cubex buys in Glastonbury

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 apital, and follows on from the successful model established at our Bath Business Park.”

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.”

Big sheds dominate

Major distribution facilities are at the heart of a vibrant industrial sector which has emerged strongly from the recession. That is because geographical necessity plays a significant role. That applies to Swindon where the Japanese car firm Honda performs so well and could play a bigger role in the immediate aftermath of the earthquake in the home country.

Its key location brought DIY firm B&Q into a massive 74,007 sq.metres (796,649 sq.ft.) shed on Gazeley’s G Park, South Marston, which was completed two months early. That is a change from the phased occupation that was originally planned. The site has the capacity for two more large sheds, although smaller than B&Q’s, at 40,876 sq.metres (440,000 sq.ft.) and a quarter of that size.

Gazeley’s Charles Blake commented: “Deliverability is the key. The buildings have planning permission and the roads are going in because of B&Q.” In this case the DIY firm bought the freehold. Another substantial development is by UBS Triton Property Fund which has demolished the former Woolworth shed and, working with Graftongate, is seeking planning permission for a 41,805 sq.metres (450,000 sq.ft.) facility although it might opt for a solar photovoltaic park. Also at South Marston, RO Developments (ROD) has sold a 384 sq.metres (4,136 sq.ft.) unit at South Gate for £340,000. Richard Bourne of ROD said: “RO24 Swindon continues to prove popular with local businesses and private investors. We only have 5 units remaining and we expect these to go soon.”

Meanwhile, there has been an improvement in the office market in Swindon, said Kenington’s Jeremy Sutton, with an increase in enquiries in the first quarter and more buildings going under offer. “There are opportunities in lease renewals and companies are now looking to move to better space. This is mainly smaller occupiers although there are some more substantial enquiries in the market.” He expects the totally rebuilt Station Square office property, which at 4,645 sq.metres(50,000 sq.ft.) is one of the largest in town, to do well.

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.

Invest til you drop

One interesting aspect of the investment market is the amount of money going into shopping centres even though consumer spending is flat. That could be a sign that institutions are taking a long term view of a revival in spending in the UK where the building of new shopping facilities has eased considerably over the past few years.

In Bristol, HSBC European Active Real Estate Trust has paid £50.2 million for the Galleries Shopping Centre from the Mall Fund, of which Capital & Regional has a 16.7% shareholding. British Land is one of the companies taking a positive view on shopping centres with two deals in the South West in the past few months, giving it a total of 12 centres. It is buying the leasehold interest in the 12,000 sq.metres’ Green Lanes Shopping Centre, Barnstaple for £30 million. This is a very successful mall with 5.5 million shoppers a year and is over 99% full with all the High Street names such as Bhs, (the anchor), Mothercare and Wilkinson.

A few months earlier, British Land paid £240 million for the 52,953 sq.metres (570,000 sq.ft.) Drake’s Circus Shopping Centre in Plymouth which was a good deal for the developer because it gave a yield of 8%. Multi Development was also in the market to sell its half share in the 42,734 sq.metres (460,000 sq.ft.) SouthGate, Bath which it developed with Aviva Investors, who hold the other half share. A price of £150 million to give a 5% yield was envisaged. However, this has now been suspended. DTZ’s view of the investment market is that it is cautious characterised by inactivity for a large slice of 2010.

Another indicator is that institutions have narrowed their view, at least in the regional markets, of what is prime property. The agent argues that opportunistic investors have taken their profits from the market upturn and investors are for the most part sitting on their assets and paying down debt. Furthermore, it points out that yields are near their long term average and the outlook is, therefore, flat over the next year “with upside risks to 2011.” The question that hangs over this gloomy view is what will be the effect of the dead development situation with few new assets being built in the UK, apart from London.

Keeping it going

After a year which beat expectation, the hope is that
the pace can be maintained although there are some
concerns in the region that 2011 will ease back again.
There appear to be many reasons for this view, including the national problem of a fast declining stock of Grade A space. The cautious approach is understandable given the global problems engendered by the earthquakes and the future of government spending cuts. With the nearby areas stretching through Southampton and Portsmouth doing well, notably in industrials, the suspicion must be that the South West is likely to perform more strongly. Jeremy Hughes of BNP expects a “harder year in the market with the dynamics affected by the lack of prime stock. If the building is right, it will go and the larger companies can afford to move.”

The rationalisation of distribution so that companies are under one roof continues to be a major trend, which can be seen in his case with the interest from occupiers in the 8,918 sq.metres (96,000 sq.ft.) property Hughes is marketing in Trowbridge. Another major deal by BNP and King Sturge is the Scottish company WH Malcolm taking 23,225 sq.metres (250,000 sq.ft.) at Western Approaches in the ever popular Avonmouth to satisfy a distribution contract.

DTZ also sounds a cautious note. ”Current requirements suggest that subdued transaction volumes are likely in early 2011 and the annual total is unlikely to reach that of 2010. ”On the other hand,” it said: ”we anticipate an increasing proportion of Grade B take up, following a return from the mid sized professional and media sectors. Bristol also has a reputation for its clustering of firms in the sustainability sector and take up from these types of companies could make some net subtractions from availability.” Ben O’Connor of GVA said: “Life has improved since the end of 2010 and we have had more viewings, bringing cautious optimism, although these are mainly for small offices. But there are a handful of larger deals in the pipeline.” The final point of optimism is that only the new 10,219 sq.metres (110,000 sq.ft.) Bridgewater House will be completed this year so there could be a long wait for any speculative space. Landlords hope this will allow a real improvement in the rent free periods they give.