Hot property: behind the scenes of the regional office sector
Increasing demand for quality office space in Leeds is driving a surge in rents, and the trend looks likely to continue.
Rents for prime offices in the city averaged £37 per square foot by the end of 2023 and seem likely to exceed £45 a square foot by the end of this year. Rents on quality refurbishments are keeping pace and are likely to exceed £40 a square foot.
While this may seem like good news for landlords, increasing demand for modern facilities, a shortage of development land and the costs of bringing older buildings up to modern specs mean the equation is not so simple.
Thebusinessdesk.com’s Creating Offices for Modern Tenants round table, sponsored by fit-out specialists Design Tonic, brought some of Leeds’ leading commercial property experts together to discuss the current state of the office market and future trends.
A key consideration for both refurbishments and new builds was the changing demands for facilities as people returned to offices.
“Landlords and business owners have to try a little bit harder to make offices spaces be the places that people want to go to,” said Caroline Woolley, partner and head of building consultancy at architects Bowman Riley. “To get people to leave home and come into the office you have to create spaces where people want to be.”
“There’s a lot more focus on wellbeing now,” said Alex Hailey, senior director at CBRE. “The gym, the fitness space, the outdoor space, air quality is important. It’s all related to your physical and mental wellbeing.”
Amanda Cook, founder of Design Tonic, said this had proven very positive for her firm. “I can’t remember the last time we had a brief about how many people we could fit in. It’s about what breakout space they can get, what extra gym facilities. It’s been an exciting time for us, and I hope it continues.”
She added, “We’ve been working on a large building in Manchester, and there’s consideration about their locker and changing rooms. We’ve not just got changing rooms, we’ve got drying lockers, Dyson hair dryers, tropical showers, saunas, ice baths. The trend is for more amenities.”
The ramifications of thriving offices went beyond the building, said Andy Buckley, design director at Curtins. “It’s about making places. It’s about creating space and new areas of the city and bringing people back into town – and all the development that that brings.
“As a structural engineer I think making of what we’ve got is just as important from a sustainability perspective. But new offices are great new, flexible spaces. They’re design for day one use, and they’re uber efficient.”
Efficiency and environmental credentials can be a major draw when attracting tenants, the panel agreed.
“The key sustainability credential we’re seeing now is gas-free buildings,” said Hailey. “We have a number of clients who will only consider all-electric buildings. Previously EPC has been important, and BREEAM ratings. But the one thing that’s really coming to the top from an occupier perspective is the gas-free element.
“Most companies are looking to go carbon-neutral by 2030 or 2050, and commercial property is one of the big carbon footprints. It’s not just the sustainability side, it also comes into staff attraction and retention, because millennials, Generations Zs, they want to be aligned with companies that are seen to be sustainable.”
Refurbishing old building stock can pose particular problems for improving sustainability.
David Aspland, director of Eshton Group, said he loved older buildings, but it was hard to find contractors that wanted to work on them. “It’s a risk management game, really, Building something from new you pretty much know what it’s going to cost once you’re out of the ground, but a refurb building, well…”
Craig Burrow, group property director at Town Centre Securities, added, “It is difficult in this market to get contractors that are willing to take that risk and price unknowns. It’s a great challenge. We do have to repurpose things in this world, but it’s difficult to do.”
William Gaunt, joint managing director at Sunny Bank Mills in Farsley – a heritage building transformed from a derelict site to a thriving art and business space – said one factor that could help was calculating the amount of carbon locked up in existing buildings. “I wonder now with material prices having increased by 35%, maybe 50%, whether actually keeping use of the existing materials will bring the costs back down rather than having to import new stuff.”
Heritage buildings such as Sunny Bank Mills are desirable in their own right. Pardeep Khela, director at Schofield Sweeney, said a client of his had recently moved to the Granaries. “They wanted something that wasn’t uniform, that was welcoming and warm and had a bit of character to it. And it’s really helped with their recruitment as well, with people joining them because they loved the office.”
A further complexity with refurbishing heritage buildings was Historic England listing. Khela, said. “It’s very, very expensive. It’s a really complicated, cumbersome process. IN Bradford, Huddersfield, Halifax, there’s a lot of old stock, a lot of listed buildings, and trying to breathe life into them, turn them into good quality office spaces, is very difficult and very expensive. And it often puts people off.”
At the end of the day, Burrow said, it came down to rental prices. Buildings, including fixtures, had a lifecycle and would always need to be refurbished.
“When you have a cap on your rent, then it comes to a compromise as to what additional services you can put in to hit the sustainability targets. A big thing for the occupier is efficiency. If you’re upgrading your mechanical systems and your lighting, the operating costs have to be significantly lower than they would have been with an old system. But that requires big investment from landlords and developers.”
The is the first of two articles from the Creating Offices for Modern Tenants round table. The second will look at the economic trends and challenges around office development, investment strategies, and financing.
