Market View
Each week TheBusinessDesk.com asks experts from Yorkshire’s commercial property community for their views on a burning issue affecting the market.
This week’s question is:
How concerned are you that demand is outstripping supply in Yorkshire’s city centre office market?
James Verity, of Sanderson Weatherall’s office agency team:
“There is a limited supply of new office buildings in the city centre and those on site now will not be ready until later in the year or 2009. Most of the new-build grade A space in the city centre that is complete is now almost fully let and schemes have not been replaced with similar stock in such good locations.
“We are certainly finding that when discussing requirements with occupiers there is very little choice available other than design and build options such as City Square House and Whitehall Riverside, which have a lead-time of up to 18 to 24 months.
”This is going to have a continued effect on the city’s ability to attract inward investment in the form of footloose national or international requirements, as they are usually not prepared to wait this long. At the same time, it is this kind of requirement that Leeds is poor at attracting with most existing demand coming from generic growth of companies with a presence already.
”With very little new stock ready to come to market, it is likely that Leeds will fail to pull in national occupiers in the near future. We may also see existing occupiers becoming reluctant to move from their current premises, instead taking short term overspill in other buildings until something else becomes available. In order to move forward as a city and push economic growth, more quality development in the city core is needed.”
Tom Brammeld, senior surveyor in Jones Lang LaSalle’s Office Agency team in Leeds:
“It has been well documented that there are only a limited number of new office schemes to be completed in Leeds city centre during 2008/09. Significant developments this year include IVG/HBG’s Latitude Red on Whitehall Road, DeltaLord’s The Mint on Sweet Street and the refurbishment of Town Centre Securities’, Town Centre House.
“The current lack of prime Grade A stock in Leeds is restricting take-up as occupiers are unable to find satisfactory space to fulfil their requirements. The upside is that as they complete, speculative new office developments of the likes of Latitude Red, Broad Gate and The Mint, should benefit from these larger requirements, and will help to increase choice for occupiers.
“Based on annual office take up over the last few years, Leeds city centre has managed generally to record somewhere between 500,000 to 600,000 sq ft of office transactions each year with broadly 50% of this accounting for deals in brand new office space. With around 300,000 sq ft per annum due to be produced as new stock over the next two years, and with good levels of demand set to continue into the rest of the year, the city centre market still looks set to maintain this healthy balance.”
Eamon Fox, associate director at DTZ:
“Yes, it is true supply of existing top end product is at a recent low, however with three schemes totalling in excess of 450,000 sq ft to be delivered during 2008, the supply issue will be covered.
“We have seen rents move north over the preceding six months in Leeds, which for the most part has been due to limited supply. As you would expect, the remaining 210,00 sq ft of Grade A product (DTZ estimate) is located over a number of buildings, so occupiers looking in excess of 40,000 sq ft will find in difficult to get the density under one roof.
In relation to demand, it continues at a healthy level, although conversion from enquiry to doing the deal is slowing up. We must be careful not to over talk the current position – yes, there is a level of uncertainty amongst occupiers, but Leeds is a robust offering, with a lot of generic growth amongst occupiers, so we expect activity to continue at a consistent level.”
Alex Munro, the of commercial agency development in Leeds for Knight Frank:
“Leeds has seen consistent rental growth within its city centre office market over the past few years and this is forecast to continue. The city has a great deal to offer in terms of prime office space as well as quality of workforce and lifestyle, so it’s no surprise to see it ranked so highly in national comparisons.
“Prime office rents have now reached £27 per sq ft. Although the short and long-term development pipeline is healthy, there exists the potential for under-supply within a couple of years which should result in further rental growth.
“There is no evidence so far that the credit crunch will hit this rental growth. If anything, the current downturn may discourage some developers from speculatively developing their sites putting additional upward pressure on an already limited stock.”
Richard Thornton, head of office agency at King Sturge in Leeds:
“The central Leeds office market is well balanced with supply meeting demand although this is not likely to be the case in 2009/2010 when all Grade A space is likely to be taken up.
“Certainly, if an occupier wants a building in a prime Leeds location – such as in, or around, City Square – in excess of 20,000 sq ft, it is simply not available and potential occupiers will either have to wait or commit to a pre let.”
“In respect of smaller cities like York, speculative development is limited given the size of the market and levels of demand. However, there is Grade A space available in York and the city is well placed for the next year or 18 months.
“In general terms there are concerns in that, as the development tap has been turned off, occupiers who do not have the luxury of pre-let timescales could well miss the boat and have to consider existing refurbishment opportunities.
