Rent for new business space in the South West has risen to record levels as post-pandemic demand continues, new research reveals.
Increases in office and industrial rents have in part been driven by construction cost inflation, but the main cause is demand outstripping supply, according to the latest Market Monitor report by commercial property firm Alder King.
The largest increases were seen in Bristol, where the new headline rent for top-end city centre office stock is now £42.50 per sq ft - up 10.4% from £38.50 in 2021. Gloucester, Swindon and Taunton also recorded substantial office rental growth.
The same trend could be seen in the region’s industrial sector, Alder King said. The report said a new sub-10,000 sq ft industrial unit in Greater Bristol would now achieve a rent of £12 per sq ft - up 9% from £11 per sq ft six months ago. Meanwhile, Exeter, Gloucester, Swindon, Taunton, Bridgwater and Truro also saw increases ranging from 2.85% to 10.5%.
Alder King’s head of agency Simon Price said: “Whilst higher rents obviously present challenges to businesses already facing pressures from increased raw materials and energy prices, they reflect the ongoing imbalance in supply and demand - and they are required with construction cost increases to make new development financially viable."
New office and industrial developments are under way in a number of locations across the region, including Bristol, Exeter, Gloucester, Bridgwater and Truro.
"These developments will help ease but still not fully satisfy current demand and whilst we anticipate further rental growth before the end of the year, we do expect the rate of growth to ease," added Mr Price, who said the rental increases on new stock would also impact businesses facing their first rent reviews on space acquired in 2017-2018.
Another factor facing the market is the very low supply of serviced and consented industrial development land in Bristol following a number of developer acquisitions.
"The issue of future employment land allocation is at a critical juncture at a time when local authorities are already under pressure to allocate land for residential development," said Mr Price.
However, the Alder King report also confirmed the "underlying buoyancy" of the region’s commercial property market, despite the worsening geopolitical and macro-economic environment.
It said while the investment market is already adjusting to the increasing cost of borrowing and a lower number of active purchasers, the occupational market had had a "stellar" first-half year, with the regional office and industrial markets delivering their highest first-half take-up since 2017.
The report also said the level of current active enquiries, "bodes well" for the second half of the year - and would give confidence to developers bringing forward new stock.
"Occupier demand for good quality business space remains strong, with high enquiry and transaction levels," added Mr Price.
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