Property predictions – What’s the wish list for 2014?

ALL the surveys and statistics conclude that 2013 saw Yorkshire’s property market taking positive steps towards recovery, so how is 2014 shaping up? Experts from around the region give their views.

Edward Ziff, chairman and chief executive of Town Centre Securities:

“After years of uncertainty, for the first time we enter a New Year with really positive prospects. The property sector has seen increasing interest from the occupational and investment market for good quality retail and commercial property, which is starting to build momentum.

“What will ensure that things keeps moving in the right direction will be the return of banks being serious about lending to the property market and committing to do business. We are very fortunate as a PLC with a long and rich track record our stakeholders have remained very supportive of us. However, this is not replicated across the whole marketplace though and smaller developers are still being stifled. Genuine commitment to lending will drive the sector on.”

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Paul Fairhurst, head of office at Savills in Leeds:

“Leeds has gone from strength to strength over the last 12 months. The opening of the 1m ft sq Trinity Leeds Shopping Centre in March kicked things off and has been hailed as a great success. The opening of the First Direct Arena and winning Le Grand Depart for 2014 has all boosted the morale in the city.

“In the commercial office market take up has increased by 60% on 2012 to an anticipated 650,000 ft sq in the city centre alone, with The Mint, Broadgate, and No 1 Leeds all now virtually full. Additionally Leeds has less than 200,000 sq ft of quality office stock available and this imbalance of demand and supply has been recognized by both UK and overseas investors now showing an active interest in the city.

“2014 will see further good news with Hammerson due to start on site on its Victoria Gate scheme and the eagerly awaited John Lewis Store and Network Rail plans for Leeds station. With no new speculative development proposed larger office occupies will be forced to think two – three years ahead to allow time for developers to build out new schemes and pre-let’s will dominate the market activity while funds and developers reassess their appetite for speculative development.”

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Jeff Pearey, lead director – North East Region at Jones Lang LaSalle:

“We would hope that the large number of potential office pre-lets currently circulating in Leeds will follow on the heels of Shulmans and KPMG in 2014 and make commitments to new buildings. The fillip that these two pre-lets gave to the market in 2013 should not be underestimated and gave rise to most of the Grade A space in existing office buildings being snapped up.

“We’d also hope that there will be a return to some selective speculative development in both the Industrial and Office sector. Supply levels of Grade A office space are at a 10 year low and the choice for industrial occupiers right across the region is also limited.

“2014 looks set to be a good year. There are signs that occupiers are adopting a more positive outlook and considering their options for growth. This is also matched by an improved investor appetite for our city and wider region so the outlook is currently better than it has been for some time. The lack of stock in our markets is a concern, but some good quality refurbished properties coming to the fore in 2014 should help to ease this situation in the mid – tier market.”

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Jonathan Shires, director of office agency at CBRE, Leeds:

“In order for the positive take-up levels of 2013 to continue into 2014, we need more occupiers inwardly investing into the region. The fact that KPMG could have selected any regional location for their national training programme but chose Leeds was a real vote of confidence for the city and one which we hope will encourage other firms to follow suit.

“The city is still on the crest of a wave of attention driven by the arrival of the First Direct Arena and Trinity and that momentum needs to milked. It would be great to see more redevelopment at the key entry points to the city where visitors will arrive by train and car so that we have the visual impact a leading city like Leeds deserves.”

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Eamon Fox, associate director in DTZ’s office agency team:

“2014 will be dominated by more pre-letting activity, a hardening of rents, incentive packages coming in and we believe at least one new building speculative office scheme. We believe that the low point in the market and consequent maximisation of incentives available in the current property cycle was has now passed. It is our view rental levels will begin to stabilise and grow steadily during the period Q1 2014 onwards.”

Richard Brooke, surveyor in DTZ’s investment team in Leeds:

“Investor sentiment in Leeds has improved significantly since spring this year, with many investors seeing value in regional markets that offer higher yield returns. Demand remains for prime buildings; well located and let on long leases to good tenants, however with a lack of truly prime product in Yorkshire we have seen many investors starting to creep up the risk curve, most likely to compromise on lease length in order to drive yield. There has also been an increase in investor demand for good secondary opportunities that offer genuine asset management opportunities to improve value.

“Foreign investors have continued to be very active, particularly for the best quality investment stock but 2013 has also seen a significant increase in domestic investor activity.”

“Looking forward to 2014, activity levels across all major market sectors look positive. With many institutional investors ‘sitting on cash’ we expect that competitive bidding will continue on the region’s best assets. We anticipate that investor confidence will continue to spill over into selected secondary markets resulting in yield compression for good quality secondary stock.”

Christopher Murfitt, director in DTZ’s valuation team:

“As 2013 draws to a close, the Yorkshire and Humberside property markets have seen mixed fortunes from a lender’s perspective. Undeniably, Leeds continues to be the main focus for the larger lending opportunities where well let investment assets have provided opportunities to acquire at attractive yields. However, this in turn has caused a hardening of yields within specific sectors such as the city centre office market where a lack of new Grade A stock has increased confidence over rental growth prospects.

“This has had the consequence of bringing ‘good secondary’ assets to the attention of investors where bank’s now have the opportunity to lend slightly further up the risk curve in the knowledge that take-up figures for the city centre reflect a good level of enquiries and tenant activity. However, away from the office market remains fragile in out of town locations and within towns such as Bradford, Dewsbury, Huddersfield and Hull where there is a legacy of poor quality stock and a background of very narrow tenant demand.

“Meanwhile, the industrial and logistics markets have generally performed well throughout the year and across the region – the established motorway network providing arterial prime locations.”

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BNP Paribas Real Estate’s head of Leeds office, Richard Dunhill:

“The Leeds office market is showing positive signs of recovery, with take up and demand for quality assets increasing slowly.

“This upturn in activity reflects the growing investor appetite for good quality, secure regional assets offering attractive yields – we expect this to continue into 2014.

“However, there is a degree of caution overhanging the recovery. Developers still won’t commit to speculatively developing a new building without signing a significant pre-let, instead preferring the less risky option of speculative refurbishment. Looking into next year, we do not predict that this will change drastically.

“In terms of the office occupier market in Leeds, favourable incentives continue to be offered to attract tenants; but with anticipated rising competition for premium grade A space, 2014 could see levels starting to reduce whilst rents start to rise.”

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Alan Syers, portfolio director at Evans Property Group:

“The strong take-up levels of 2013 have resulted in a real lack of Grade A office space in Leeds city centre, so 2014 should see a focus on replenishing that stock and creating availability for relocating and new occupiers wanting quality space in the city. Occupier confidence is certainly returning and this combined with low supply levels makes it an excellent time for developers to bring both new and high quality refurbished stock to the marketplace.

“Our ongoing refurbishments at Minerva and Capitol House will provide a combined 50,000sq ft of Grade A offices to accommodate occupiers looking for space in the heart of the city.”

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Ian Greenwood, a director in Carter Towler’s industrial agency department:

“From an industrial market perspective we have seen a genuine improvement in activity since the early part of Summer 2013. Occupiers appear more certain of an improved economic situation going forward and have been prepared to back this market confidence with the pursuit of property acquisition to fuel expansion. The continuation of improving market data has led to a very clear reduction in the levels of qualitative stock available within the Yorkshire market.

“We believe this confidence will continue into 2014, increasing the pressure on developers to commence speculative development to provide the type of new quality stock which has been largely absent from the supply chain for the past four to five years.

“We believe that a number of developers now see this as the correct time to be moving into speculative development and, that where schemes are brought forward, not only will this greatly assist the supply characteristics of the market but those schemes should be extremely successful for the first developers stepping into the market place. We are confident that following five years of subdued but steady levels of activity, that we are once again entering a period where the real issue facing our industry is one of lack of supply rather than reduced levels of demand.”

Rob Darrington, partner with Sheffield-based property consultancy Commercial Property Partners (CPP):

“Demand and activity will continue to increase in 2014 for the office market. 2013 has seen take-up and demand improve compared with 2012. 2014 will be the third year in a row which has seen the market improving.

“Although the actual number of deals is increasing, the region has lacked any significant-sized deals, which are needed to ensure take up figures reach the levels they were pre-downturn.

“The conversion of offices to residential will slow down, while Sheffield will see its first office development start since 2008. The fortunes of Sheffield’s city centre office depend heavily on what decision is made in relation to the proposed new retail quarter.”

On the industrial market, Darrington said: “Well-located sites in South Yorkshire will see speculative development return towards the end of the year, while continued take-up levels will see lack of availability increase.

“There will be continued demand from large retailers for large distribution sheds, but demand will diminish for tertiary stock.

“Meanwhile increase in residential values will result in change of uses being sought.”

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Ben Hall, investment director at GVA in Yorkshire:

“There have been positive signs in recent months that activity in the region’s commercial property sector is heating up. GVA has been involved in a number of deals which are a good indicator of the strong investor sentiment we are seeing across the region.

“As our recent Invest in Leeds City Region acknowledges, the entire region has shown resilience during the economic downturn and is well placed to benefit from the recovery that is now gaining momentum.

“We are seeing increased interest from investors looking outside of London and the south east to put their money in Yorkshire property and expect this to continue across all asset classes in 2014.”

Paul Manning, senior director for GVA in Yorkshire, added: “Perhaps the greatest indicator of our renewed confidence in the market is investment into our own team in the region. We have recruited a number of new staff over the past year and plan to continue this in 2014.”  

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Alexander Duckett, associate at Knight Frank:

“On my wish list is for developers to speculatively build in Leeds. Whilst funding is still very difficult, it is always preferable to let built stock.”

On the year ahead:

“I expect the positive sentiment to continue in line with the economy. The lack of available stock will put pressure on the pre-let market as well as developers to speculatively build. Take up statistics are likely to compare negatively to 2013 due to the lack of available stock.”