Investment deals double and office markets recovering – reports

THE volume of property investment deals doubled to £270m in 2010 while signs of recovery in the UK office leasing market appeared during the second half of the year, according to two new reports.

This year could see the first “green shoots” of recovery in the region’s commercial property market, suggests property consultants Sanderson Weatherall.

Drivers Jonas Deloitte points to the sales of 2 Brewery Wharf, Kings Court and Sovereign House as the key investment deals of 2010.

Its  Key Cities 2011 study forecasts yields to hold at 6.5% after a 50 basis point tightening last year.
 
And Jones Lang LaSalle’s Quarter 4 2010 National Voice – Office Market Conditions report, which looks at  office leasing and investment markets in Leeds, Birmingham, Manchester, the Western Corridor, Edinburgh and Glasgow, found that take-up activity was up 75% in comparison with the first six months of the year.

John Weir, head of Drivers Jonas Deloitte in Leeds, said: “Leeds’s recessionary hangover is nearing its end with no new developments expected to come forward this year, but this lays the foundations for a future revival.

“With rents expected to hold steady for another 12 months, and no further decline on the horizon, canny occupiers will be looking to do their deals in 2011.

“Once we start to see the market’s over supply reduce then there will be an opportunity for developers with the sites and planning permission in place to capitalise on the upturn.”

The report found that average rents for prime space stabilised after falling in the first quarter of 2010 and predicts they are likely to remain unchanged at £24 per sq ft.

The failure of large deals expected from Leeds City Council and the NHS to materialise contributed to a 15-year low in office lettings in the city, it says.

UK institutions and private property companies were the most active vendors, accounting for almost three quarters of the number of sales.

According to Jones Lang LaSalle, the 2010 office take-up volumes for the six key markets monitored totalled 5.5m sq ft, a 36% increase compared with 2009.

Activity came from a wide spectrum of companies, although the majority were covered within the business service sector, including recruitment consultants, media firms, IT companies and serviced office operators, the report found.

Jeff Pearey, head of Jones Lang LaSalle’s national offices team in Leeds, said: “2010, whilst typified by a large number of small lettings to new and expanding companies, has filtered through to a wider tier of medium and large enquiries coming through in early 2011. 

“The start of this year has therefore shown improved levels of confidence from occupiers in the local leasing markets.”
 
Mathew Atkinson, associate director in Jones Lang LaSalle’s national investment team in Leeds, added: “Prime office buildings continue to be the preferred investment to avoid tenant default / letting risk.

“Given the level of competition and associated pricing investors are now looking to good secondary stock; banks are also beginning to release more stock to the market.”

Whilst take up figures in the Leeds city centre office market in 2010 were “unnervingly low”, the volume of transactions throughout the year was “reasonably healthy” –  a continuation of the trend for smaller lettings, according to Sanderson Weatherall.

Commenting on the Leeds city centre office market, Richard Dunn, partner at Sanderson Weatherall, said: “Almost 87% of city centre transactions during the year were for lettings under 5,000 sq ft.

“Indeed demand for smaller suites of Grade A product has remained pretty consistent and supply in the prime core continues to dwindle, a result of dormant developer activity.”

Sanderson Weatherall’s predictions for the year ahead include an anticipated increase in take up and that attractive deals available during 2010 are expected to remain whilst landlords compete to attract new tenants.

Significant pre-let activity is also predicted for 2011, with a number of large names known to be looking to relocate.

Mr Dunn added: “We anticipate that take up will start to improve and with a number of lease events affecting major occupiers particularly between 2013-2016, the next 11 months will see increased pre-let interest as occupiers, particularly amongst professional services firms, seek enhanced quality stock in prime areas.”

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