Values in both the residential and commercial property sectors look set to soar as demand continues to outstrip supply, new research shows.
Growing demand for property in Bristol is being driven largely by students, buy-to-let investors, and relocating Londoners moving from the capital to Bristol because of the significant gap in living costs.
But while activity picks up, a severe housing shortage means that demand continues to outstrip supply across most parts of Bristol, which in turn is driving up values in the residential sector.
With Bristol’s population forecast to increase by 41,000 people by 2025, it is estimated that the wider Bristol area requires at least 85,000 new homes by 2036 to keep pace with demand. But with an average of approximately 3,000 homes being delivered a year in the 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”, said George Cardale, head of residential development sales at Savills. “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.
Savills report that 530 new homes were delivered by this route in the year to March 2015, as developers seek higher returns by converting redundant office space into more valuable homes.
But while office to residential conversations activity continues to pick up, a severe office shortage has culminated in significantly fewer offices on the market, which in turn is driving up values in the commercial property sector.
Commercial capital values in Bristol are now exceeding residential in several locations in the face of ongoing demand from occupiers, according to the research by 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 rapidly growing population means that aside from more new homes, Bristol also needs up to 1.4 million sq ft of new office space to accommodate the 14,000 or so new office based jobs that are due to be created in the city within a decade. However, 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.
Room for growth
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”, said Susan Emmett, director, Savills Research.
Chris Meredith, director of office agency at Savills Bristol, added: “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.”