By Ian Lambert, Investment Partner at Hartnell Taylor Cook
Throughout 2021, Bristol remained one of the most popular investment markets in the UK. The city witnessed a number of sizeable deals, which transacted across all asset sectors including not only standard industrial, office and retail classes, but also hotel and buy-to-rent.
During the pandemic, Bristol has – perhaps more than ever – proved itself as a fantastic place to live and work, which was reflected through the large volumes invested into the city in 2021. As we start a new year, the standout question is whether we can expect this incline in investment and activity to continue in 2022 and what wider changes we could expect to see in the market as a result.
A flourishing office market
Despite the current fluidity of hybrid working, office uptake in Bristol remains on the up. After a strong final quarter, total city centre office take-up was 541,000 sq. ft, in keeping with the long-term average.
Over the past year, we all know there has been significant change to occupier demand, with tenants seeking high quality, new build space with strong ESG credentials, which has driven plenty of activity. The largest deal of the year went for £135 million (the sale of BT’s new headquarters ‘The Assembly’ to LCN Capital Partner) and our team was involved in a plethora of office deals with buyers that included overseas regional office funds, UK REITS, family trusts, residential developers and an NHS Trust. The appeal of Bristol’s market to an investor was clear last year, and is only set to grow in 2022, through ESG considerations, such as net zero credentials, becoming more important to occupiers and investors alike.
Availability of Grade A space remains at an all-time low and it is likely that this year we will see the price of central new build stock hit new highs. In contrast, out-of-town activity was in line with the 10-year average in 2021. With rents expected to hit £42.50 per sq. ft in central city locations and £26 per sq. ft for prime out of town properties, the disparity between in and out of town property looks set to widen, creating even further opportunities for investors.
Industrial and logistics on the up
However, the office market does not stand alone in its growth. According to the Industrial Agents Society, industrial take-up in the region reached 2.6 million sq. ft in 2021, up 13% from 2020. What’s more, in the year ahead, the increase in industrial take-up shows no signs of slowing down.
In 2021, a variety of single let, multi-let, part vacant and brand new industrial and logistic investments attracted interest from a multitude of buyers. Best bids were generally sought on every industrial investment asset that came to market including fundings and a multitude of large deals in the area occurred during the year. These included the sale of Accolade Wine’s distribution hub in Avonmouth for £90 million; City Business Park, a 1980’s multi-let estate, for £30 million (at an eye-watering yield of 2.86%); and the acquisition of Rockingham Gate for c.£16 million. These deals are prime examples of the market’s view that industrial rental values in the region are set to see plenty more growth.
In 2022, it is likely that investment demand for industrial/logistics assets, regardless of age or quality, will continue across the board. As occupational demand outstrips supply, there will be a corresponding increase in land values. Indeed, if speculatively developing an industrial and logistics unit, it would be best to think very carefully about agreeing to a pre-let whilst rental levels continue to rise.
Retail’s rockier road
Clearly, the world of retail has changed considerably over the last few years, with Covid-19 wreaking havoc on a sector that was already unstable. However, with pricing at an all-time low in the sector, it seems we have reached the bottom and attractive yields can now be obtained for the right asset that occupies a prime retail pitch on a rebased rent.
Shopping centres are currently available at historic low capital values per sq. ft, enabling property companies and local authorities (buying based on regeneration plays) to acquire them based on alternative uses. What’s more, the implementation of a more relaxed planning regime is providing comfort that repurposing is more than feasible.
With the market seeing historically low values, we have witnessed a number of deals in the city last year. For example, Melberg Capital recently acquired Broadwalk shopping centre in Knowle at circa £44 per sq. ft and South Gloucester District Council acquired Kings Chase Shopping Centre at a price reflecting £89 per sq. ft, the latter included a substantial development site. In addition, Sovereign Housing Association acquired Clifton Down Shopping Centre, with a medium-term view of converting the office element to a residential building at a point in the future.
Purchasing retail assets with the intention to repurpose has been a key trend in Bristol’s retail – something that is set to continue in 2022 and beyond as buyers seek to transform parts of the city. Broadmead, has seen an increase in the number of major stakeholders involved in the medium-term transformation to a true mixed-use retail and living quarter. AEW has joined LaSalle Investment Management and Hammerson as a major owner in the city and has been quietly amassing a number of holdings in the area with an eye to re-purposing the core shopping district.
So, in 2022, where does the opportunity lie? Looking West could hold the key. Rents appear to have settled and, whilst Cabot Circus has reaffirmed its top status for prime retail by attracting national and international tenants, it is Broadmead West that provides a number of key initiatives that could prove valuable in the next phase of repurposing the centre of Bristol.
The year ahead
The fact that we are still living through a pandemic (albeit hopefully turning into an endemic), worsening inflationary pressures and escalating construction costs mean that uncertainty lingers as 2022 takes a hold. However, looking through our usual rose-tinted spectacles offers a positive glimpse of the future with reams of opportunity in Bristol. Why? Location, location, location is a mantra often repeated. However, when investing in Bristol, you can safely say the location is spot on.
