Rental differential between new build and refurbished office space reaches marginal levels in Bristol
According to Savills, 38% of the total speculative office space being delivered in UK regional cities over the next three years will be in the form of refurbishments, which is set to lift average rents across the country.
There continues to be a lack of appetite for speculative development with developers becoming increasingly cautious over the feasibility of new build schemes. However, despite this Savills notes that there is still a sustained level of demand for space in many of the regional cities alongside an increasing lack of stock. As a result, this is influencing demand for refurbished office buildings.
The market is starting to see a new generation of refurbishments, which offer higher quality product than seen previously and consequently ‘back to frame’ schemes are now becoming interchangeable with new build stock. In Bristol, refurbished rental growth has outstripped new-build rental growth following a lull in speculative developments. The city has seen refurbished rents rise by as much as 100% in some instances over the last five years. The current rental differential between new builds and refurbishments now stands at marginal levels.
The firm expects Bristol to be the next city to see a step change in top rents, driven by both a shortage of new build product and the record low refurbished/new build differential. Consequently, Savills expects new build rents in Bristol to reach £33.50 per sq ft (£360 per sq m) by the end of 2018, reflecting an 18% increase on current levels.
Christopher Meredith, director in the business space team at Savills in Bristol, comments: “Recently the Bristol office market has been driven by the lack of stock and increasing levels of demand. As such we are seeing a ‘flight to quality’ as landlords comprehensively refurbish secondary space in order to attract and retain tenants. This has pushed rental differential between new build and refurbished stock in Bristol to the lowest of the UK regions.”
Mat Oakley, head of commercial research at Savills, adds: “In the absence of new space, we have seen a number of comprehensively refurbished offices of Grade A quality delivered including the 120,000 sq ft Programme scheme in Bristol and 56,000 sq ft at 55 Spring Gardens in Manchester. This influx of refurbished space has helped to satisfy the trend for non-traditional office accommodation both in city centres and out towards more fringe locations such as Great Charles Street and Suffolk Street in Birmingham, which are becoming increasingly popular with occupiers looking for non conventional office space.”