Developers urged to get building

A YORKSHIRE property expert is urging developers to “dust off their plans and get building again”.

Jordan Yorath of Countrywide – which owns both the Bridgfords and Flatsinleeds brands in Leeds city centre – said stakeholders, freeholders and developers with planning consent for apartments need to review previous decisions to put developments on hold and start building.

He said due to another year of “overwhelming” lettings demand coupled with “drastically increased” activity in the sales market, available stock is at an all-time low.

“Looking at the city centre market, by the end of September, the number of properties actually available to let accounted for just 1.5% of all city centre apartments,” Mr Yorath said.

“This is a striking increase in occupancy since 2010, where a report published by Rachel Unsworth of Leeds University titled ‘Leeds beyond the boom’ estimated that occupancy levels across the six leading letting agents was more like 92%.

“Bearing in mind that the majority of these available apartments are properties where tenants have only just given their notice, it is estimated that half of these are likely to be occupied and may well be re-let before the current tenant even vacates, resulting in a short void for the landlord, which means that the city centre market is now experiencing demand which outweighs any current and pipeline supply for the lettings market.”

According to the latest Deloitte Real Estate UK Cities Crane Survey 2013, there were no new construction starts and zero deliveries of residential units in 2013, leaving residential completions at their lowest level for a decade.

However, Angela Barnicle, Deloitte Real Estate’s head of Leeds, said: “There has remained a large supply of residential units since the boom period in 2007 – though this has now largely been absorbed, particularly by the vibrant lettings market. We do not expect this slow performance to last too much longer as the success of developments such as Trinity and the Arena will entice both developers and residents to the city.”

Earlier this year, government permitted development rights to enable offices to be converted to homes without the need for planning permission, for a temporary period.

Countrywide, which bought Lambert Smith Hampton for £34m last month, is appealing to freeholders of buildings traditionally used for offices in the city centre to reconsider their office space business plan.

“Most modern office occupiers seek grade A purpose built office space and a large amount of the currently marketed office space is not what the modern tenant seeks and this has left a large amount of unused and unsuitable office space available to let,” Yorath said.

“Apartments have become a commodity that is in short supply to the open market in Leeds city centre. The freeholders need to take a fresh look at the lettings market and realise that residential use would virtually guarantee them income and a high level of occupancy all year round. When you factor in the cost of rates for an empty office space, the argument only gains more weight.”

Yorath said the likely knock-on effect of increased success in the commercial market- with major schemes such as the Arena and Trinity Leeds –  is likely to yield an increase in employment figures locally which will further strengthen the demand for city centre apartments.

He said that with a lack of new apartments in the pipeline, this will mean in the short-term rents are likely to increase even further and a strong likelihood that people will have to look further away from the city to fulfil their accommodation needs and commute for work.

Yorath added that the issue is compounded by an improving sales market, more activity and interest, improving values and the effect of the government incentive scheme to buy a property with a deposit of just 5%.

He said: “The city centre market is one dominated by the demographic of people who most would call a typical first time buyer. As a result, a proportion of those currently renting are now looking to buy and the current price of a one or two bed apartment in the city centre falls perfectly in to their budget under the scheme.

“My concern is that these first-time-buyers will have little choice other than to purchase properties which were previously used as a rental property and therefore, a tenant is removing himself from the rental market along with a rental property and this increases the issue of limited availability. In fact, as the employment market improves and university attendance levels show no sign of slowing down, the demand for the city centre lettings market will only get stronger until new stock is developed and added.

“Leeds is a vibrant city in a new phase of recovery and possibly the early stages of growth. Residential development has to be given a kick start and I think that the initial phase of this may well appeal to developers taking a different view on their exit strategy. The height of the market in 2005-2007 saw a huge number of properties in the city centre sold off plan to naïve investors who didn’t do any due diligence.

“In 2008, many developers left holding stock turned to the rental market in an attempt to cover their holding costs. The way that the market is currently behaving I think there is a strong case for developers/investors to build apartments with a view to retaining the freehold and all units on a long-term lettings strategy, combined with selling on to investors who are looking for sensible yields of 6% net after the costs of service charge and ground rent.”

Flatsinleeds and Bridgfords have acted for several developers where the firms have ‘built to let’ and successfully let all properties within a very short period of time, including the Algernon Firth Development for Rushbond which has 110 beds, 46 apartments at Indigo Blu for Merin properties in 2012 and some smaller schemes in Morley and Pudsey town centres this summer.

Yorath said there are nearly 10,000 undelivered apartments within approximately 35 schemes that have planning approval in Leeds city centre. He said this means that if a developer was to commence building now, it will be around two years until any apartments are ready for occupation.

He said: “If just 10% of these properties are delivered in this time frame, I am confident that rising sales values and increased pressure on the lettings market will mean that a developer who takes the bold step to start building now, would reap the rewards on completion.”