Leeds office take-up breaks all records
IMPROVING economic conditions helped fuel occupier activity in Leeds, driving take-up to its highest level on record, according to the latest research by global property consultancy Knight Frank.
The research revealed that take-up in the second half of last year was 353,338 sq ft, bringing the full-year total to 789,530 sq ft, almost double 2012’s figure and up 57% on the ten-year annual average.
Occupier activity throughout the year was driven by financial and professional services, which accounted for more than half of total 2013 take-up. Notably, auditing firm KPMG took a total of 89,521 sq ft across two separate deals in Sovereign Square and Broad Gate, while financial services firm Yorkshire Building Society leased 76,413 sq ft in Broad Gate.
Elizabeth Ridler, partner with Knight Frank in Leeds, explained that the Leeds office market was largely dominated by smaller transactions in the second half of last year, with nearly 65% of all deals falling in the sub-5,000 sq ft category. However, there were several larger deals, including Leeds City Council taking an additional 50,000 sq ft at the soon-to-be refurbished Merrion House.
She said: “Named active demand has steadily improved during the past six months, with an increasing number of good-sized requirements over 20,000 sq ft. Notable requirements include Sky (60,000 sq ft) and the Health & Social Care Information Centre (145,000 sq ft), while several law firms are looking to move.
“Increased occupier demand, coupled with limited development activity, has led to an acute shortage of Grade A supply. Currently only one building in the city centre (No. 1 Whitehall Riverside) is able to accommodate an immediate Grade A requirement over 50,000 sq ft.
“However, several major office developments have recently received planning consent during 2013, including buildings 5 & 6 at MEPC’s Wellington Place project, covering 105,000 sq ft and 144,000 sq ft respectively. MEPC is actively seeking potential pre-lets and has been in discussion with several firms.
“The second major scheme approved was Town Centre Securities’s Whitehall Riverside, where No. 2 and No. 3, two office blocks comprising 198,000 sq ft and 114,000 sq ft respectively, were approved by Leeds City Council,” she added.
According to Knight Frank’s research, the scarcity of good quality supply has led landlords to push headline rents out, particularly for refurbished Grade A stock. Additionally, incentive packages have begun to harden, with landlords offering 12-15 months free on a five-year lease where they were previously offering 18-24 months free at the start of 2013.
Ridler said: “2014 will see the supply of Grade A stock continuing to diminish. The increasing number of conversions to student residential housing, a market that continues to expand in Leeds, has begun to impact Grade B stock. While several schemes received planning permission in 2013, none are expected to come on site in the first half of this year.
“However, we anticipate that demand for space in excess of 10,000 sq ft will continue to increase, resulting in more pre-lets in 2014. Rental incentives are expected to continue to decline, but headline growth is expected by the end of 2014.”
Henrie Westlake, head of investment at Knight Frank in Leeds, added: “The Leeds investment market has strengthened substantially in the last twelve months, benefitting from the strong weight of money among UK funds and investors increasingly seeking opportunities outside of London.
“Investment volumes in the second half of last year amounted to £121.6m, bringing the annual total to £162.1m. This represents a large improvement on 2012, with more than double the amount transacted year-on-year.”
Prime office yields hardened over 2013, moving in 50 basis points from 6.5% in the last quarter of 2013 to 6% at the year-end.
