Muted office take-up in first half but ‘good long term prospects’

Office take-up in Leeds was “muted” in the first half of the year but prospects for the sector are positive in the long term, a new report says.

CBRE’s H1 Leeds Office Market summary reveals that Leeds office take-up of 237,165 sq ft in the period was similar to the previous two half year totals and trailed the five year average by 18%.

There were three lettings over 20,000 sq ft – 46,058 sq ft to Burberry at No. 6 Queen Street, 25,968 sq ft to Willis Towers Watson at 5 Wellington Place and 22,441 sq ft to BW Legal at 1 Apex View.

The majority of take-up, however, was in the sub 5,000 sq ft size band. Despite a lower level of enquiries in all size ranges the annual take-up total is still likely to be a record for Leeds city centre if the pre-let of 350,000 –380,000 sq ft at Wellington Place to the Government Property Unit is taken forward.

Looking to the second half of the year, CBRE says demand is expected to be patchy for at least another quarter.

“There are limited larger requirements in the city, with a few exceptions, so it is likely to be a tough market. There are more lease events approaching in 2018 and 2019 which could trigger some consolidation and moves. In general Leeds suffers from a lack of consistent inward investment,” the report said.

Total availability at the end of the first half was 1.35 million sq ft, virtually unchanged from one year ago. Grade A stock has increased considerably, however.

At the end of H1 there was 487,390 sq ft of newly completed or under construction grade A space, a 43% increase from 12 months ago. The prospects for new development are limited. There are several schemes which have planning and could start next year.

CBRE said: “However, with the subdued market its unlikely we will see any speculative starts until the second half of 2018 and only then if confidence and pre-lets return.”

Prime rents have jumped from £27.50 to £30.00 per sq ft following the Burberry letting. CBRE anticipate prime rents on new build space have now reached a plateau that will be sustained for at least the next year.

“Owing to its unrivalled location above the train station, Bruntwood’s new redevelopment at Platform is likely to set a new benchmark in rents for redeveloped buildings, albeit on smaller sub 10,000 sq ft deals,” said the report.

H1 2017 witnessed the completion of just four office investment deals in central Leeds totalling £59.2m. The largest transactions were the purchase of Bond Court by Canals and Rivers Trust from L&G for £25m and also the sale of Toronto Square by M&G to JP Morgan for £22.2m.

Interest in the Leeds office investment market has remained consistent post referendum and UK general election result. The most active buyers are UK based property companies and asset managers with access to overseas equity.

Interest from UK and overseas funds is beginning to increase as lack of available stock combined with aggressive pricing in London, Manchester and Birmingham is forcing them to consider alterative centres. The positive occupational story in central Leeds is becoming increasingly attractive to investors and many are starting to realise that certain Leeds opportunities offer better value for money than properties in other regional cities.

Prime yields remain at 5.5% mainly because prime stock has been extremely limited. Pricing is likely to hold up well in H2 2017 due to increasing investor demand.

Jonathan Shires, senior director, national office agency at CBRE, said:“Like most regional markets Leeds is having to roll up its sleeves in what is a tough and patchy climate. The market has been affected by politics over the past 18 months but the Yorkshire grit is proving resilient and confidence is returning which is shown in the take-up for H1.

“There remains a good supply of stock in all size and grades and although headline rents have seen an increase Leeds is still the most cost effective location of the top UK cities. This should hopefully encourage more inward investing companies to consider Leeds as a true alternative to the South East and London”

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