Spotlight Bristol Cross Sector 2016

Savills World Research UK Cross Sector

SUMMARY Bristol must address its housing and workplace shortfall to continue its economic growth

■ Bristol’s economy has grown ■ There is also an undersupply of ■ Bristol needs to grow to faster than other cities outside of new office space, with only one accommodate its rising population. London. Robust demand for homes year’s worth of Grade A supply Co-operation with neighbouring local has pushed up house prices in available. Failure to meet demand authorities is key. At least 30,000 Bristol by 11% over the past year, may inhibit growth prospects of new homes are currently being outpacing the national average. local businesses and make it harder planned for or developed in the city’s to attract new companies. immediate surrounding areas. ■ Wider Bristol needs a very minimum of 84,364 new homes ■ Bristol has seen the highest number by 2036 and would suffer from a of applications granted for office potential future shortfall of at least to residential conversions outside “Bristol’s economy has grown 1,234 new homes a year, if current London. However, we expect to rates of building continue. see a shift in this trend as growth faster than other cities outside in office rents means commercial of London” refurbishment is attractive again.

savills.co.uk/research 01 Spotlight | Bristol Cross Sector 2016

Market dynamics the largest single employer being However, take-up in 2016 is expected Bristol City Council with over 5,000 to reach 800,000 sq ft, 63% up on the STRONG GROWTH employees. The universities and previous year. Is there enough available CHALLENGE AND OPPORTUNITY hospitals also provide a significant space to soak up this demand? number of jobs. We expect this Our analysis shows there is BOOSTS DEMAND sector to continue to grow with more currently a severe under-supply of Bristol needs a greater supply of homes and offices to meet demand office requirements from GPU and new space in the market, with only Central Government going forward. one year’s worth of Grade A supply However, the fastest growing available. We anticipate a continued sector, in terms of employment, is the decline in supply levels going professional, scientific and tech sector, forward, with increased demand and STRONG which has grown by 44% over the limited developments (fig 2). Bristol needs to build more ristol is undergoing last five years, closely followed by the The next scheme to complete will 450k POPULATION 260k homes and workspace to ensure dramatic change, information and communication sector, be Aurora, Finzels Reach in 2017. This Population AND Bristol’s supported by the which grew by 26% over the same scheme will provide 95,000 sq ft of of Bristol workforce economic growth continues fastest growing period, demonstrating the strength of new office space, the equivalent of less EMPLOYMENT economy outside the TMT sector in Bristol. than a year’s worth of supply, which is % GROWTH % London,B city centre regeneration and Indeed, our take-up figures show not enough to satisfy future demand. +10.4 +9.5 a vibrant cultural scene that saw it that the TMT sector has grown by The lack of new developments could 10-year increase (2005-15) 10-year increase (2005-15) voted as the best city to live in by 70% from the 2008-2010 period to inhibit future inward investment into The Sunday Times last year. the 2013-2015 period (fig 1). Further the city as well as preventing current The economy rebounded strongly to this, the BBC is a major occupier in occupiers from upgrading their space. following the recession, expanding Bristol city centre, employing around There is potential for additional by 19.2%, between 2009 and 2014, 2,500 people. We have also started to developments, such as Aspire ahead of Birmingham (16.3%) see a number of tech clusters forming (200,000 sq ft), 3 Glass Wharf NEW and Manchester (15.2%), with the around the city in places such as (109,000 sq ft) and Glass Fields best performances coming from Clifton and Spike Island. (100,000 sq ft) to start on site, which DEVELOPMENT manufacturing, real estate and However, this economic success are yet to be confirmed. A significant ONE 2,984 UNABLE TO year’s worth construction, the latest Government brings further development and pre-let would likely kick-start more More homes built per data shows. planning challenges which must much needed development within the KEEP UP WITH of office development year over past 5 years This economic growth is reflected be tackled to ensure the city’s city centre over the next few years. under construction in in wider Bristol area DEMAND in strong demand for both residential competitiveness and continued We have seen the lack of office the city centre and commercial property across the growth. space available in Bristol drive city and beyond its boundaries. House The population is projected to the demand for ‘value-add’ office prices rose by 11% in 2015, well increase by 9.3% between 2015 and refurbishment opportunities. These are above the 6.4% average for England 2025, adding 41,000 more people to attractive given their speed to market and Wales and just behind London’s a city of 450,000. Employment growth and their ability to ‘plug the gap’ while growth of 12.4%, according to HM means that an estimated 14,000 office the market waits for developments to Land Registry. based jobs will be created during the complete. These include: 1 Cathedral LIMITED One of the biggest employers next decade. Street, catering for the more corporate in Bristol is the public sector, with To accommodate these workers, we tenant, and Pithay, geared towards the SUPPLY estimate between 900,000 sq ft and more creative start-up.  Aurora is a 95,000 sq ft office project in Bristol city centre 22% HAS ONE 1.4 million sq ft of floor space will be Below annual target CAUSED A year’s worth of needed over the next ten years. Grade A office supply As one of the key cities within for new homes in SHORTFALL the UK, Bristol needs to develop wider Bristol area in the city centre the suitable commercial space it requires to continue to attract inward investment and enough housing to accommodate its growing population. Office take-up is set to rise by 63% in 2016 Office demand & supply Lower property and staff costs DEMAND compared with the South East, have % also acted as a magnet for businesses % DRIVES making a move to the South West. 5.3 11.7 Predicted growth in As the UK’s fifth biggest city and Growth in house UP 1,234 Grade A office regional commercial hub, demand for prices in 2015 PRICES office space both within the city and potential annual future rents in 2016 its surrounds has been consistently housing shortfall if current strong over the last five years. building levels continue Last year, take up of office space in the city centre was just under the Source: Oxford Economics, DCLG, HM Land Registry, Bristol Core Strategy 2011, North Somerset Core Strategy 2012, five year average of 533,000 sq ft. South Gloucestershire Core Strategy 2013, Savills Research

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Office rent increases space. The rental differential is likely to see investors looking for secondary Residential property a higher number of new build sales. FIGURE 3 Due to the lack of new supply to widen again as new developments assets in strong locations where limited Strong economic growth, increased So far this year our agents have taken New build residential values coming through in the Bristol set higher rental levels. new development has taken place. competition in the mortgage market reservations for over 190 homes, which market, Savills forecasts prime rents Opportunities now exist for active and robust demand from cash- is more than Savills sold in the doldrum New build Average Average to break through the £30 per sq ft Investment ‘value add’ opportunities within the city. only buyers, coupled with a lack of year of 2009. apartments asking price £ per sq ft barrier during 2016 and rise to £35 £385m was invested in the Bristol appropriate homes for sale, have More recently, we have seen high Studios £159,500 £405 per sq ft by the end of 2020. Indeed, office market during 2015, the highest Rental and student driven up house prices in Bristol. As a demand for smaller units with one and Bristol is likely to see the best rental level of investment since 2006, well The private rented sector (PRS) is well result, Bristol saw the biggest increase two bedroom apartments making up 1 £217,160 £389 growth of all the UK cities and could above the 10 year average of £210m. established in the Bristol city centre, in the value of housing stock outside 92% of our sales in 2014/2015. This see a 12% rental increase on the Overseas investment, made up 21% with 55% of households renting London. The total value of housing year, affordability pressures on home 2 £351,704 £395 best space by 2017. of volumes in 2015 and this trait has according to the 2011 Census. Rental in the city is now £44bn following an purchasers and the search for better 3 £544,992 £381 This supply/demand imbalance continued into 2016 with the recent values in Bristol city centre have been increase of £4.5bn over 2015. yields among investors has lead to an has driven rents upwards in the sale of Bridgewater House at Finzels rising steadily over the past five years, Demand is mostly home grown. increase in demand for studios. 4 £820,000 £436 Grade B market (£25 per sq ft), whilst Reach for £56.3m. The sale was again growing by an average annualised Our own data shows that over the last good quality refurbishments are to overseas investors and reflects a rate of 6%, due to strong demand three years, the vast majority of buyers Government policy Source: Savills Research achieving similar rents to Grade A net initial yield of 5.35%. We continue from young professionals faced with have come from Bristol and Somerset Whilst 52% of our purchasers affordability constraints, a growing and have purchased a home as their were homebuyers, 41% bought student population and very low levels main residence, with the bulk (52%) for investment and 7% purchased FIGURE 4 FIGURE 1 of new housing supply. buying properties worth between second homes (fig 4). This Buyers of new build residential Demand from the TMT sector has increased by 70% The search for higher yields and £500,000 and £1m. dynamic may change as a result fresh opportunities is prompting Average values in Clifton village, the of government policy to level the Purchaser Finance Position 2014/15

n 2008 - 2010 n 2013 - 2015 PRS investors to look beyond most affluent neighbourhood in Bristol, playing field between buy-to-let Main Residence Investment/Redevelopment London. Previous analysis in Spotlight exceeded £750,000 last year. Values in investors and first-time buyers. 700,000 Second Home on Rental Britain earlier this year Leigh Woods were not far behind. The recent introduction of an extra identified Bristol as one of the top The majority of our purchasers 3% levy on top of standard stamp duty 600,000 % cities for institutional PRS investment. were upsizing (59%) but a significant rates for investors and second home 7 With 39,000 students at the proportion (14%) bought because buyers, the phasing out of mortgage 500,000 University of Bristol and the University they were relocating, particularly at interest tax relief for landlords and of the West of England, there is also the higher end of the market. Among the fact that residential property was 400,000 strong demand for student housing. sales over £1m, which make up just exempted from plans to cut Capital One third of these students can over a quarter of our deals, 8% of Gains Tax, is likely to have a calming 300,000 be accommodated in University these were bought by London buyers. effect on investor demand. % % Office take up Office 41 52 controlled and private student However, not all of these buyers Developers may therefore become 200,000 housing. A further 1,500 student beds relocating their residence to Bristol increasingly reliant on homebuyers’ (11% increase) are in the development were employed in the city. Among demand underpinned by other 100,000 pipeline. In our Spotlight on UK those buying homes worth £1m, 15% government initiatives such as Help Student Housing last year Bristol continued to work in London. to Buy and Starter Homes. Under 0 was identified as a “first league city”, current proposals, developers building TMT Business & Professional Public Banking Engineering Unknown Manu- Property Charities & Consumer Services / Financial / Utilities / Other facturing & Company Associations reflecting both strong demand and a New build residential schemes of 10 homes or more will be Services Industry need for more supply. We continue to see an undersupply in required to deliver 20% of the scheme Source: Savills the new homes. With almost 4,000 as a “Starter Home”. n Source: Savills Research Retail & Leisure new households a year projected to Bristol is ranked in the top 10 of the emerge in wider Bristol over the next FIGURE 2 UK centres (PROMIS) and offers 20 years, the area needs least 84,364 FIGURE 5 Office supply will continue to decline House prices since peak a broad mix of retail and leisure, new homes, according to official England & Wales London South West City Of Bristol n Total supply (sq ft) n Supply forecast supported by the thriving office and estimates. (Wider Bristol HMA strategic 50% 3,500,000 residential markets which in turn has housing market assessment, which fuelled this evolution. includes the whole of Bristol, North 40%

3,000,000 The main shopping area of Somerset and South Gloucestershire.) Broadmead focuses on Cabot Circus Given that we saw an annual average 30% (1m sq ft of retail). Anchored by of 2,984 additional new homes 2,500,000 House of Fraser and Harvey Nichols, delivered across Bristol, North 20% the scheme offers mid to high end Somerset and South Gloucestershire 2,000,000 retail, family leisure and casual dining. over the five years to March 2015, this 10% Broadmead is balanced by The represents a potential future shortfall 0% 1,500,000 Galleries Shopping Centre, which of at least 1,234 new homes if current

Supply (sq ft) serves the value, convenience and building levels continue. -10% 1,000,000 mid-market sectors. However, some have questioned House price compared to 2007/08 peak House price compared Clifton Viillage offers more whether the official numbers are -20% upmarket boutiques and recently high enough with alternative 500,000 attracted The Ivy restaurant. To the estimates of housing need north of -30% north of the city, the Mall at Cribbs 100,000 which would result in far 0 Causeway and The Venue are looking higher housing shortfalls. 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 towards a significant expansion Our own experience suggests Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010 Dec-2011 Dec-2012 Dec-2013 Dec-2014 Dec-2015 Source: Savills through development. that market demand would support Source: HM Land Registry

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City centre OFFICE OR RESIDENTIAL?

As office rents start to grow once FIGURE 6 more, we analyse the conversion Bristol new build residential and prime office capital values conundrum in the city centre KEY Development in central Bristol n In planning n Planning permission granted n Under Construction 1,000 1,000,000 Residential Redland ristol has seen the highest number of new Cotham Residential Commercial Office £450 /sq. ft homes created from office to residential 750 750,000 conversions of any local authority in £425 /sq. ft England, adding 530 new homes to Bristol STUDENT AREA in the year to March 2015. 500 500,000 BPrevious differences in values as well as a supply St Paul’s of older lower grade office stock in the city enabled Kingsdown Number of homes /sq. ft 250 250,000 developers to take advantage of the relaxation of £350 space (sq. ft) Commercial /sq. ft planning policy to allow conversions from office to £400 residential under Permitted Development Rights (PDR) 0 0 introduced in 2013. As a result, many recently launched Redcliffe Southville St Philips St Pauls City Redlands Spike City Centre Island Centre residential schemes came through PDR, providing Source: Glenigan much needed housing for Bristol. Clifton This feature of the planning system has now been £550 /sq. ft made permanent and has expanded to allow the demolition of office space and the conversion of light £450 /sq. ft CABOT CIRCUS industrial space to residential. In theory, this change Professional/TMT UNIVERSITY OF BRISTOL St Philip’s in policy should facilitate a surge in the conversion of unused or under used commercial space into much £350 /sq. ft needed housing. However, the high rate of conversions from office to City Centre residential in Bristol reflects the volume of older stock £425 /sq. ft in the city rather than any weakness in commercial Leigh Woods Hotwells Bristol £500 /sq. ft demand. As office rents start to rise as a result of Harbourside under-supply of workplaces in the city, we expect to £525 /sq. ft /sq. ft £425 Corporate/TMT see a shift in this trend. £450 /sq. ft

/sq. ft Shift in the market £500 Redcliffe / Although Bristol saw the highest number of applications Financial Temple Meads ENTERPRISE ZONE granted for office to residential conversion outside £400 - 425 /sq. ft London, we do not expect all of these to be developed BRISTOL TEMPLE MEADS STATION out. The eight storey Pithay building in central Bristol £500 /sq. ft illustrates this adjustment in the market. The building was Spike Island Corporate originally going to be converted into residential use. But £425 /sq. ft with offices in Bristol now seeing strong rental growth, it is about to undergo a comprehensive refurbishment into £350 /sq. ft a Grade A TMT office building. The building is located TMT within the city’s traditional core. However, with financial and professional companies now moving out of this area, Southville it is now reinventing itself as the main tech hub within the city centre. £375 /sq. ft Totterdown As the map shows, residential and office values are commensurate in the centre. Residential values for new £400 /sq. ft build homes are higher in the west of the city (at £525 per sq ft), namely in Clifton and Leigh Woods, whilst values in the east of the city are much lower, at an average of £325 per sq ft. The cost of conversion remains high and therefore likely to take place only in locations where there is a substantial differential between office and residential values. n Source: Savills Research

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Future hotspots

n PAINTWORKS Situated on the Bath Road to HOW WILL BRISTOL EXPAND? WHERE NEXT the south east of the city centre, Paintworks is the regeneration of a Cooperation between neighbouring local authorities is key former Victorian paint factory. Four FOR DEVELOPMENT? phases of work have been planned Bristol needs to grow in order to accommodate its rising population and to continue to develop the site. to attract investment as its economy flourishes. Hence the city must seek to intensify Over 500 jobs have already been development within its urban areas as well as to co-operate with surrounding local attracted by the site, and this is authorities. Release of suitable sites on the Green Belt could provide opportunities for expected to rise to about 1,000 jobs much needed urban extensions. when the work is completed in 2018. The scheme has been particularly Bristol City Council, Bath and North East Somerset, North Somerset and South Bristol is in a good position to outh Bristol, which has creative and digital start-ups. Across attractive to TMT firms given its Gloucestershire, drew up the West of England Joint Spatial Plan which estimates the make the most of future growth been given Housing the River Avon, there are plans relatively affordable rent and clusters need to build at least 84,364 homes over the next 20 years. Around 56,000 homes are Zone status and for a new cultural offering with the of creative companies nearby. Small, already planned for, with planning permission or sites already allocated. Different scenarios opportunities both in its city £300,000 to support regeneration of Arena Island, the warehouse-like workspaces, let for to increase housing include: urban intensification and repurposing sites for housing, boundaries and beyond development is one former diesel depot site, to include the around £18 per sq ft. expansion of urban areas into adjacent countryside, expansion of other towns in the area Sof the city’s future growth areas Bristol Arena, an entertainment venue The third phase is now and the potential to bring together cluster of sites for strategic purposes. for employment and housing, with with capacity for 12,000. The Council currently under construction. It is plans for 8,000 new homes. The is currently consulting on a new the largest residential phase with Critics have questioned whether more is needed, with some estimating housing need of completion of the South Bristol link Masterplan for Temple Quarter. planning permission for 221 homes more than 100,000 homes by 2036. road next year will improve access and approximately 72,000 sq ft of to the area. Here are some other n FINZELS REACH commercial space across five acres. Our map provides a snap shot of the current pipeline of larger developments in Bristol’s areas to watch: The city centre mixed use scheme Crest Nicholson is currently on surrounding area with over 30,000 homes planned for and under construction. known as Finzels Reach, has already site with an average residential attracted a number of professional asking prices of £370 per sq ft for DEVELOPMENT HOTSPOTS FIGURE 7 FOR THE NEXT DECADE firms and residential buyers. the first phase. The 115,000 sq ft Grade A Bridgewater Residential and office development around Bristol n BRISTOL TEMPLE QUARTER House is now fully let to Barclays, BDO n FILTON & SURROUNDING AREA (Residential developments over 100 homes) With Bristol Temple Meads station at and EDF Energy. EDF Energy took The urban area of Bristol extends its core, this 70 hectare site is among 81,000 sq ft at £28.50 per sq ft during into neighbouring district councils. the biggest regeneration projects in Q1 2016, in line with the 2015 peak. To the north of the city in South KEY the country. It opened as an enterprise Due to limited new developments in the Gloucestershire, the arch between Under construction zone in 2012 offering incentives to city, we expect the next phase of the Cribbs Causeway and Filton, In planning (application or consent) businesses such as streamlined scheme, Aurora (95,000 sq ft), set to including the airfield and Charlton Pre-planning (allocated or strategic) planning, reduced business rates and complete during Q3 2017, to let quickly. Hayes in Patchway, provides  Built up area superfast broadband. It is expected There is also planning consent for opportunity for larger scale  Green Belt to attract 17,000 jobs over the 25 year 200 apartments on the scheme. development with the potential lifespan of the project. Construction is about to commence on to create new neighbourhoods YATE There are already more than 300 Finzels Bridge, which will link Finzels and employment. 2,700 homes businesses in the area including Reach to Castle Park. The 65 acre former site of the NORTH BRISTOL Rolls-Royce East Works is set to  Finzels Bridge will link Finzels Reach to Castle Park 497,000 sq. ft become a new business park having 2,200 homes secured planning consent for 1.2 4,900 homes million sq ft of commercial space, NE BRISTOL warehousing and industrial uses. 32,000 sq. ft The £120m development, to be 3,200 sq. ft 2,400 homes known as Horizon38, will provide BRISTOL 1,600 homes major employment with car 146,000 sq. ft dealerships, trade counters, self 633,000 sq. ft 2,000 homes storage and a major hotel and is set 3,400 homes to complete next year. SW BRISTOL 300 homes Residential and retail is being 120 homes 600 homes planned on the opposite side of the 5,200 homes A38. There are plans for at least SE BRISTOL 2,675 new homes on the former 1,260 homes 100 homes Filton airfield. Local advantages 140 homes include access to M5, M4 and Bristol Parkway station which takes you directly to London in 1hr and 20 minutes. The area is also adjacent to Cribbs Causeway shopping centre. Nearby large employers include Rolls Royce, BAE Systems and Airbus UK. n Source: Glenigans, Savills Research

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OUTLOOK

■ Bristol is set for further growth. The ■ Wider Bristol area needs at least ■ The devolution agenda will give population is projected to increase by 84,364 new homes over the next 20 years, the region more power but place a 9.3% between 2015 and 2025, adding according to official estimates. Alternative greater onus on the four West of England 41,000 more people to a city of 450,000. estimates, including work by Professor councils to work together. Under the Over the next five years, total employment Glen Bramley for West of England devolution agreement announced in growth in Bristol (4.9%) is expected to Partnership, suggest higher targets would this year’s budget, the West of England outperform the UK average of 3.0%. be more appropriate. Combined Authority, working with a Bristol’s office based employment over new elected Mayor for the combined this period is expected to grow by 7.1%, ■ The supply/demand imbalance is set authority, will receive £30 million a year above the UK average of 5.4%. to push up house prices in Bristol. funding over 30 years to boost the We forecast that house prices in the region’s growth. ■ Infrastructure improvements such as the South West will rise by 20% over the electrification of the Great Western railway, next five years outpacing London (15%). ■ As part of greater regional cutting journey times to Cardiff and London Bristol should continue to outperform the responsibilities, the authorities have and faster internet connections will add to rest of the region with steeper growth over agreed to bring forward a Joint Transport the momentum. The MetroBus network to be the period. Plan by the end of 2017. The councils launched next year will support development also aim to accelerate housing delivery in the Bristol conurbation. ■ The shortage of office space and quality by prioritising investment in infrastructure future developments will push up office associated with development including ■ Bristol is set to become the next rents. Bristol is likely to see the strongest transport, schools and health. gig-city, benefitting from gigabit internet rental growth of all UK cities. We expect The devolution package also gives speeds which will further support its Grade A rents in Bristol to rise to £35.00 the region responsibility for the further growing TMT sector. per sq ft by the end of 2020. education budget. Savills team FIGURE 8 Mainstream markets: five-year residential value forecasts Research

MAINSTREAM 2016 2017 2018 2019 2020 5-year UK 5.0% 3.0% 3.0% 2.5% 2.5% 17.5%

London 5.5% 2.0% 2.0% 2.5% 2.5% 15.3%

South West 6.0% 3.5% 3.5% 3.0% 2.5% 19.9% Susan Emmett Lucy Greenwood Clare Bailey Michael Barnes UK Residential UK Development Commercial Research Commercial Research 020 3107 5460 020 7016 3882 020 7409 8863 020 3107 5459 Source: Savills Research NB: these forecasts apply to average prices in the second hand market. New build values may not move at the same rate [email protected] [email protected] [email protected] [email protected] @saemmett

 Bristol is set for further growth Bristol Office

George Cardale Julian Harbottle Craig O’Brien Peter Clayton Andrew Main Chris Meredith Residential Development Planning In Town Retail Investment Office Agency Development Sales 01179 100329 01179 100335 01179 102205 01179 102207 01179 102216 01179 100351 [email protected] [email protected] [email protected] [email protected] [email protected] £35 [email protected] PER SQ FT Office rents in Bristol to Savills plc Savills is a global real estate services provider listed on the London Stock Exchange. Savills operates from over 700 owned and associate offices, employing more than 30,000 people in over 60 countries rise to by the end of 2020 throughout the Americas, the UK, Europe, Asia Pacific, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.

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