High demand from office occupiers has led to commercial values catching up with residential values in several areas of Bristol, according to new research from Savills. This is leading to some schemes in the city now being more profitable as office use rather than residential, despite increasing demand for housing.
Following the economic downturn, Bristol’s economy has grown faster than any other city outside London, expanding 19.2% between 2009 and 2014, and is set for further growth.
Bristol’s population is forecast to increase by 41,000 people (9.3%) by 2025 and an estimated 14,000 new office based jobs are due to be created in the city within a decade. Up to 1.4 million sq ft (130,000 sq m) of new office space is required to accommodate these workers, but at current take up rates there is only a year’s worth of Grade A office space in the city centre before demand begins to outstrip supply. In addition, the wider Bristol area requires a minimum of 85,000 new homes by 2036 to keep pace with demand. With an average of approximately 3,000 homes being delivered a year in the wider Bristol area this will lead to a shortfall of at least 1,234 homes every year if current building levels continue.
“During 2015 we saw a large number of residential schemes launch”, says George Cardale, Head of Residential Development Sales. “Appetite continues to be very high; we have agreed more sales in the first quarter of 2016 than we did in the whole of 2012. With demand continuing unabated more new developments need to be rapidly brought forward to keep the supply/demand dynamic in balance.”
Since the changes made to Permitted Development Rights in 2013, Bristol has seen the highest number of planning applications granted for office to residential conversations outside of London. 530 new homes were delivered by this route in the year to March 2015, accounting for around a third of the total number of new homes supplied in the city during this time. Developers on the hunt for higher returns had sought to convert redundant office space into more valuable homes, but with commercial capital values in Bristol now exceeding residential in several locations, in the face of ongoing demand from occupiers, this trend is now coming to an end, says Savills. With more space set to be retained as offices, this will further exacerbate the housing shortfall.
Grade A office capital values in the City Centre have now reached £500 per sq ft when built – climbing 28% from circa £360 per sq ft in 2014 – compared to £425 per sq ft for residential space, as the area has become the location of choice for TMT start-ups and businesses. The current office space shortage is forecast to push rents to circa £30 per sq ft by the end of 2016, with Savills predicting a further rise to £35 per sq ft before the end of the decade.
“Bristol is a great place to both live and work but it is at risk of becoming a victim of its own success, with prospective residents and businesses looking to locate elsewhere unless it rapidly develops more office space and homes to keep up with demand”, says Susan Emmett, Director, Savills Research.
Chris Meredith, Director of Office Agency at Savills Bristol comments: “The strong demand for space, particularly from the TMT sector, has driven office rents for both new and refurbished space. Currently there’s only one year’s worth of Grade A supply in market and Bristol needs further development in order to continue to attract new major occupiers.”
Download Savills Bristol Cross Sector report here
