‘Larger’ deals set for return to office market

THE number of office transactions in Leeds increased in the first half of 2010 indicating a cautious increase in occupier confidence, according to new research.

CB Richard Ellis’s latest Leeds Offices Market View found that transactions were “significantly greater” over the first six months of this year compared to the same period in 2009, with £151m of investment deals completing compared with £103m.

CBRE said it believed the increased activity levels demonstrated an improvement in occupier sentiment moving into the second half of 2010, when it is anticipated that “pent-up demand” will lead to larger requirements towards the start of 2011.

Jonathan Shires, director of office agency for CBRE in Leeds, said: “While take-up in Leeds city centre in the first half of the year at 143,800 sq ft was down on the 229,800 sq ft completed in the last half of 2009, when compared with the first half of last year the figures aren’t too far behind the 184,200 sq ft completed.

“The major source of demand in the first half of the year was the business service sector which accounted for 20 of the lettings and took a 31% market share of all space let.

“Despite the number of transactions increasing on the same period of 2009, the actual deals were smaller which accounts for the reduction in overall take-up.

“A total of 48 deals have completed this year compared with 36 in the first half of last year but 41 of these deals were less than 5,000 sq ft resulting in a decreased average deal size of 3,000 sq ft against the 5,100 sq ft average of last year. There has been an absence of any significant lettings and the completion of only 2 deals above 10,000 sq ft.”

Mr Shires said that at the end of the second quarter, availability in Leeds stood at 1.7m sq ft, down 6% on the end of 2009.

“With only 35,955 sq ft under construction at 10 South Parade and no expected speculative construction it is likely that the availability of Grade A stock will begin to trend downwards over the next 12 to 18 months supporting prime rental levels moving forwards,” Mr Shires said.

“In conclusion, even though the deals completed and overall take-up so far this year has been smaller than historic levels, we can take positivity from the increase in transactional activity and the apparent brightening of sentiment that has resulted from the Emergency Budget.

“Looking ahead to the end of the year and into 2011, we are confident that a continuation of occupier confidence will result in some larger deals being completed in the marketplace.” 

The office investment market in the first half of 2010 was positive with the nine deals completed in Leeds city centre totalling £151m, up from the six deals totalling £103m transacted in the same period of 2009.

Alex Whiting, senior director of investment for CBRE Leeds, added: “The limited availability of debt finance is set to continue throughout the second half of the year and until this changes, the volume of transactions will be dictated by the appetite of funds and cash buyers.

“Due to the sharpening of yields and restricted available funds, we anticipate that the volume of transactions in the second half of 2010 will be much lower than in the first half.”