Refurbished buildings could be the saviour of the market but availability of out-of-town space is “dangerously low”
Adam Varley, director of office advisory at Lambert Smith Hampton in Leeds believes that after a standout year in 2017, he expects 2018 to be rather more sedate.
Varley said: “The first half of 2018 should continue as 2017 finished off, but the latter part of the year is going to be challenging; not because of lack of demand but the availability of space. With that in mind, it wouldn’t be surprising if take-up struggle to hit the 10 year average of 809,000 sq ft (491,000 sq ft within the city centre and 318,000 sq ft in the out-of-town markets).
“As availability of grade A space continues to rapidly diminish and in the absence of any further development starts schedule for H1, 2018 it is the refurbished building sector that will be the saviour of the office market. These buildings, however tend to have smaller footprints, so office take-up is likely to be dominated by volumes of smaller deals rather than the bigger corporate-led transactions of 20,000 sq ft+ which we’ve seen more frequently in recent years.
“With the absence of any new grade A development headline rents are likely to stagnate at the current peak of £30.00 per sq ft, but I expect that rents for re-positioned buildings will continue to grow and narrow the current gap between the refurbished buildings and new build rents.”
He added that while Leeds is served by a number of smaller, independent co-working operators, there is considerable market demand for collaborative workspaces such as those offered by WeWork in Manchester. Given the popularity of such spaces over the Pennines, Leeds must be on WeWork’s radar which would provide strong competition for those centres within Leeds.
“However, their possible arrival to the city is not a bad thing, as they bring a ‘new style’ of working to the city centre and create an environment that is likely to provide the office occupiers of the future when they eventually look for ‘grow-on’ space,” said Varley.
Whilst not directly affecting offices, Varley says that Build to Rent (BtR) has not really happened in Leeds, in the volumes elsewhere in the country. That said, given the dynamic of the city centre residential markets and the strong occupier demand, 2018 could be the year of BtR in Leeds.
He added: “Given there is no article 4 directions within Leeds, restricting Permitted Development Rights, we may see more office stock lost to residential developments. In the longer term, this may not be a bad thing given the amount of space obsolete stock that is likely to come back to the market when government agencies start their consolidation into the Government Hub at Wellington Place.
“When it comes to out-of-town space, it’s all about stock, or rather the lack of it. No-one is on site building anything speculatively. CEG has now let almost all of No.1 Kirkstall Forge and Lambert Smith Hampton is acquiring a large chunck of space at Scarborough’s Thorpe Park for a retained client: after that the availability of space is dangerously low. This represents a huge opportunity for developers and rents should now support a development appraisal.”
