BRISTOL THE FLEXIBLE WORKSPACE MARKET WELCOME FROM GKRE DIRECTOR, DOUGLAS GREEN Bristol is one of the UK s most vibrant and successful cities, which earlier this year topped the Sunday Times list of the Best Places to Live in Britain Guide. This report will give you the inside track on Bristol s local flexible workspace market, the office market as a whole and the area s economic prospects. Like our previous report on Leeds, it has been produced in conjunction with the Business Centre Association (BCA). The city s economic outlook is extremely positive and its economic growth is expected to outperform the rest of the United Kingdom by 2020. One of the drivers of this growth is the West of England s status as one of the UK s fastest-growing digital tech clusters. This is estimated to have attracted more than 110 companies to the region to date, created 3,000 jobs and added 200m to the regional economy. There is a shortage of supply of office space in Bristol and this, together with the economic factors identified in this report, make us extremely positive about Bristol s flexible space market. We expect significant growth in the market in the year ahead, both in the city centre and surrounding areas. Highlights of this report include: The current state of the Bristol flexible market, including a table showing operators in the city Where Grade A rents are expected to be by the end of 2017 The factors behind Bristol s anticipated economic growth of 15.7% by 2026 Information about Bristol s techhub, centred around Bristol s Temple Quarter Enterprise Zone one of the UK s largest urban regeneration projects Reasons behind Bristol s shortage of Grade A stock Plans for pro-working in the city. We ask if this is the future of co-working? We hope you find this report interesting. If you have any queries in relation to flexible workspace, please contact me at douglas@gkre.co.uk. 1
LOCATION OF CENTRES Bristol s flexible space market is based in three main areas. The heart of the market is in the city centre, BS1 and BS2, which as a result of major roadworks and the creation of the Temple Quarter Enterprise Zone has in recent years moved towards the area around Temple Meads railway station. Major occupiers in the area now include, IBM, BT, Deloitte, Burges Salmon and Bank of Ireland. Aztec West, a business park 10 miles north of Bristol and close to the M4 and M5 motorways is another popular area, with Citibase and Regus among operators with centres there. The other main location for flexible space is Clifton (BS8), which is popular with businesses that support the nearby university. Current office supply in Bristol s is at a very low level in the summer, it stood at 585,513 sq ft, of which only 166,000 was Grade A space (equal to around 12 months demand). This is likely to impact on the growth of the flexible space market in the city centre. OPERATORS All the main national operators have a presence in Bristol including Regus (five centres), BE Offices (two centres), Citibase, i2 Office, Orega and The Office Group. It is also home to established independents including Independent Business Centres (IBC), a specialist provider with locations in Bristol, Yate and Southampton. Much of the flexible space in Bristol is traditional serviced office space though BS9 BS8 BS3 BS6 BS2 BS1 BS7 BS2 Central Bristol postcodes (BS32 and BS37 not shown) BS5 BS4 BS16 there are other options for occupiers. Desklodge s centre at the former Evening Post building in BS2 offers a range of hot desking (effectively co-working) options, including drop in and pay as you go, monthly packages and even personal pods. Desklodge s Jamie Ellis says that co-working and flexible workspace matches perfectly with Bristol s forward thinking culture and start-up, SME scene. IBC offers co-working at its Unity Street centre, which director Matthew Wofinden says is a good stepping stone for those not yet in the market for a full office and acts as a catalyst for us bringing people into our offices. BE Offices has noticed an increase in enquiries for co-working space, with occupiers now seeking offices with communal space for time away from their desks. In response, it is introducing pro-working at its centres in Temple Meads (BS1) and Clifton (BS8). For more on this, see page 3 below. BRISTOL FLEXIBLE SPACE MARKET NOVEMBER 2017 NAME OF CENTRE LOCATION OPERATOR Citypoint Temple Gate, BS1 6 BE Offices Orega Bristol Ten Victoria Street, BS1 Orega Bristol Castlemead Lower Castle Street, BS1 Regus Bristol Temple Quay 1 Friary, Temple Quay, BS1 Regus Bristol Broad Quay Broad Quay House, Prince Street, BS1 Regus Bristol Temple Quay Bristol Temple Quay, BS1 i2 Office Bristol Wapping Wharf Jubilee House Business Centre, Wharf, BS1 Independent Business Centres Unity Street Business Centre 7 Unity Street, BS1 Independent Business Centres Bristol Old City 1 Little King Street, BS1 Independent Business Centres Bristol Park Street 2 Park Street, BS1 Independent Business Centres Harbourside Business Centre 70 Prince Street, BS1 Independent Business Centres The Office Bristol St Nicholas House, 31-34 High Street, BS1 The Office Group Desklodge 5th Floor, 1 Temple Way, BS2 Desklodge Westpoint 78 Queens Road, Bristol, Avon, BS8 BE Offices Leigh Court Business Centre Abbots Leigh, Bristol, Avon, BS8 GWE Business West Bristol Clifton 37 Regent Street, BS8 Independent Business Centres Citibase Bristol Business Park Citibase Bristol Aztec West Argentum House, 510 Bristol Bus Park, BS16 Aztec West, BS32 Citibase Citibase Bristol Aztec West 2430/2440 The Quadrant, Aztec West, BS32 Regus Almondsbury Business Park Redwood House, Brotherswood Ct, BS32 Regus Fromeforde House Church Road, Yate, BS37 Independent Business Centres 2
PRICES Asking prices range from 250 to 400 per desk per month to around 125 to 150 per month for co-working space (with variations in terms of the quality of the space and packages available). IBC s Unity Street co-working space comes in at the top end of that range and occupiers get a private desk and use of facilities such as coffee machines, cycle parking, and showers. There is no real difference between prices in the central core and those in Clifton and Aztec West. With such a shortage of space in the city, Orega s Regional Sales Manager Amanda Blakemore confirmed to us that prices remain strong. FLEXIBLE SPACE OCCUPIERS Bristol has a wide range of occupiers, as one would expect in one of the South West s major business areas. IBC s Matthew Wofinden says that occupiers in their buildings include accountants, solicitors, consultants and creatives, with Orega s Amanda Blakemore referring to similar occupiers as well as recruitment agencies and engineering companies. Desklodge has businesses ranging in size from one to 40 people with a strong presence from creative and tech businesses. This is to be expected given Bristol s status as a thriving tech hub and, according to a recent survey, one of the top six cities in the UK for start-ups. The construction of the nearby Hinkley Point C nuclear power station by EDF has led to some of its project teams and associated contractors taking flexible space in the city for the past couple of years. This is expected to continue or even expand in the years leading up to the power station s anticipated completion in 2027. PRO-WORKING THE EVOLUTION OF CO-WORKING? BE Office believes that many co-working spaces are geared towards young denim-clad entrepreneurs or youthful start-up enterprises and lack the professional space or appearance than some more conventional and slightly larger businesses require. As a result, it is introducing pro-working, which it believes is emerging as an intermediary for professionals who desire a collaborative workspace on a par with their corporate image. BE Office s MD David Saul says: There can be no doubt that our clients are increasingly aware of the rise in the co-working revolution but we are confident that they will prefer the pro-working we are offering. It s co-working all grown up! 3
PROSPECTS FOR THE MARKET Local operators believe that Bristol has weathered the Brexit storm and remains a popular location. The city took the top accolade in the 2017 Sunday Times s Best Places to Live in Britain boasting one of the lower unemployment rates in the country, varied and beautiful housing stock, decent schools, buzzy culture and night life and access to some fantastic countryside. With strong transport links and even faster rail networks emerging this year, which will see journey times to London cut to 80 minutes, we expect demand for flexible office space in Bristol to remain high. We anticipate new operators entering the market and existing operators expanding their operations. BRISTOL S TECH HUB Bristol is the one of the fastest growing tech hubs in the UK, in part due to Engine Shed, a collaboration between Bristol City Council, the University of Bristol and the West of England Local Enterprise Partnership. Engine s Shed s mission is to stimulate long term economic growth by supporting business, inspiring young people to get involved and to showcase to the public and potential inward investors the exciting opportunities that exist in Bristol and Bath. Engine Shed is based in Bristol s Temple Quarter Enterprise Zone, one of the largest urban regeneration projects in the UK, and home to a growing cluster of small and start-up businesses, particularly in the creative, digital and hi-tech sectors. The Bristol Temple Quarter aims to attract 22,000 jobs over the 25-year lifespan of the project (which started in 2012). To date, over 3,000 jobs have been created in the zone. Bristol s Temple Quarter Enterprise Zone is one of the largest urban regeneration projects in the UK 4
5 RECENT OFFICE ACTIVITY Take up in Bristol city centre in Q3 2017 was 173,022 sq ft, compared to a five year quarterly average of 155,080 sq ft. This follows a resurgence of letting activity in the city in 2016, with take up totalling 1,103,062 square feet. This exceeded the market average for the previous five years and was largely due to a series of larger deals, particularly for Grade A space. The result is a shortage of supply, which is estimated to be at its lowest level in the city centre since 2002. In part, this is the result of there having been limited speculative building and also due to buildings being lost to residential under permitted development. The pre-let by HMRC of 3 Glass Wharf (107,000 sq ft) last year at 28psf was the largest deal for nine years. Major deals this year include University of Bristol acquring 31,785 sq ft of space at Augustine s Courtyard and 13,480 sq ft at Templeback being let to corporate services provider Jordans. The TMT sector was responsible for more lettings than any other sector in the first half of this year, its 78,345 sq ft mainly comprising smaller transaction. Rents on Grade A stock were static at 28.50 psf in the first half of the year despite a lack of stock. However, with only around 585,000 sq ft of space available in Bristol city centre, a decline of 21% since the start of the year, it was anticipated that there would be rent increases and this has now started to happen. A new record headline rent of 30.50 psq was recently recorded in the city with Mewburn Ellis s 13,300 sq ft pre-let at the Aurora building. Recent major occupational transactions include: 3 Glass Wharf, Temple Quarter, BS2 107,000 sq ft pre-let to HMRC Bridgewater House, BS1 81,202 sq ft let to EDF Energy Augustine s Courtyard, BS1 31,785 sq ft building sold to University of Bristol for 11.75m The investment market Bristol saw 56m of office investment in Q1 and Q2 2017, about half the 10-year average. However, more than 105m was transacted in Q3 of this year. This included M&G s purchases of 1 Georges Square for 26.2m (at a yield of 5.5%) and 66 Queen Square for 30.1m (5.3% yield). Earlier this year, The Core, BS1 (63,123 sq ft) was sold to Direct Line for 15.20m, reflecting an initial yield of 4% Data on this page from Savills and GVA
UPCOMING ACTIVITY There is some speculative Grade A activity in the city including: Assembly Bristol, a 300,000 sq ft mixed-use development by Bell Hammer within Bristol Temple Quarter Enterprise Zone. The first phase of 180,000 sq ft is due for completion in 2018 Aurora, Finzels Reach, 95,000 sq ft of Grade A office space in BS1, which is due to complete in Q1, 2018 Aspire, 200,000 sq ft of Grade A office space in Bristol Temple Meads Glassfields, a 350,000 sq ft+ mixed-use office, hotel and leisure site in Temple Way. The first phase will be 36,500 sq ft of Grade A offices Shortage of stock means rents could reach 32.50 psf by the end of the year FUTURE ACTIVITY A couple of recent refurbishments that have reached the market have helped ease the shortage of Grade A stock. These include 58,500 sq ft of Grade A space at One Cathedral Square, BS1 which is reportedly under offer already, with Dyson and the University of Bristol said to be taking two floors eaxh. Also, The Programme in All Saints Street, BS1 will deliver 50,000 sq ft this year, with a further 70,000 sq ft next year. Savills reports that with space in such short supply, landlords are letting out second hand space without having to undergo extensive refurbishments occupiers are fitting out their own refurbished space. We believe this could provide opportunities for flexible space operators who classically look for this type of space. Take up for Qs 3 and 4 of this year is expected to be around 750,000 should the Government Property Unit go ahead with a planned letting of circa 200,000 square feet. Savills estimates that shortage of stock means rents could reach 32.50 by the end of the year. 6
BRISTOL S ECONOMY AND ECONOMIC PROSPECTS Bristol saw economic growth of 2.4% in 2016, placing it tenth in the UK league table for city growth according to The UK Powerhouse report by Irwin Mitchell and the Centre for Business & Economic research (Cebr). Reasons for Bristol s success include its high share of creative businesses, which is driving innovation in the city. It estimates that Bristol s economy is set to grow by 15.7% by 2026. EY s UK Attractiveness Survey 2017 predicts that cities in southern England (outside London) will outperform those in the rest of England in terms of economic growth in the period 2016 to 2019. Bristol is projected to enjoy the fastest employment growth, averaging 0.9% per year (creating 8,200 jobs), with accompanying gross value added (GVA) growth of 2.0% per year. The creative and tech industries are seen as key drivers of the local economy. Recent businesses that have invested in the city include Rolls-Royce, which has opened a new factory, and business services provider Quantum Advisory, which has opened an office in Broad Quay House, BS1. KEY STATISTICS Last year, inward investment created 1,800 jobs in the immediate area Since it was opened in 2013, Invest Bristol & Bath, the agency that promotes the region as a business location has attracted 110 companies, creating almost 3,000 jobs and generating almost 200m to the regional economy Bristol has become one of the fastest digital tech clusters in the UK, much of the activity based in Bristol s Temple Quarter Enterprise Zone According to data released by Bristol City Council, Bristol has the highest rate of employment of all the UK s major cities. Its employment rate is 75.9%, a rise of 3.3% in the previous five years. The compares to the national average for the UK of 73.7% Reasons for Bristol s success include its high share of creative businesses, which is driving innovation in the city 7
About GKRE About GKRE GKRE is the UK s leading specialist flexible workspace agency. Founded in 2013, the directors bring to GKRE more than 25 years experience in the flexible workspace industry between them. Our clients include operators and landlords across the UK, from major PLCs to independent companies. We have recently been involved in the merger and acquisition of businesses worth over 30m, comprising more than 360,000 square feet in some 50 buildings. On the agency side, we have acquired in excess of 400,000 square feet across the UK for 14 different operators. GKRE advises landlords and building owners throughout the UK on their flexible workspace options and opportunities to partner with flexible workspace providers. Please visit gkre.co.uk for more information on how we assist property owners, tenants and flexible workspace operators, and for details of our latest transactions. We have been nominated as both specialist and niche agent of the year by Estates Gazette and Property Week Douglas Green E: douglas@gkre.co.uk T: 020 3427 5678 M: 07855 825 088 Will Kinnear, MRICS E: will@gkre.co.uk T: 020 3427 5677 M: 07811 942 752 11 Golden Square, London W1F 9JB 020 3427 5679 www.gkre.co.uk 8