Market snapshot

Office Market Pulse Leeds Q1 2016

Occupier demand remained resilient across Leeds in Q1 2016, with over 260,000 sq ft of office space transacted between January and March – 143,000 sq ft of which was in the out-of-town market. 

Reinforcing the city’s position as the largest financial services hub outside of London, the sector witnessed a spike in activity during the first quarter, accounting for a quarter of all deals – a trend which looks set to continue as the Northern Powerhouse initiative gathers momentum and more occupiers begin to look at ‘north-shoring’ opportunities. 

However, the availability of grade A space is at an all time low, meaning that occupiers with immediate, large requirements have limited options at present. 

2016 will see the practical completion of four speculative office developments in the city centre, providing just over 250,000 sq ft of much needed space. Looking at the current demand profile the challenge for the market will be to continue to address this imbalance with further development starts.

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In this issue:

Confidence returns to out-of-town office market

A total of 264,617 sq ft of office space was transacted across Leeds between January and March 2016 – 80% more than the same period in 2015 despite fewer deals taking place.

The out-of-town market was responsible for the lion’s share of activity, with pre-lets to Zenith Vehicle Leasing and CEG at Kirkstall Forge contributing 54,550 sq ft towards the Q1 take-up figure of 142,709 sq ft – the highest quarterly out-of town take-up since Q4 2013.At 121,908 sq ft, the city centre also enjoyed a strong first quarter – up some 39% on the same period in 2016 albeit down by more than half on Q1 2015’s record breaking 267,187 sq ft.

Reinforcing Leeds’ position as the largest financial services hub outside of London, the sector witnessed a spike in activity during Q1 2016, with 233% more deals than the same period in 2015 – a trend which looks set to continue as the Northern Powerhouse initiative gathers momentum and more occupiers begin to look at ‘North-Shoring’ opportunities. 

The economic uncertainty surrounding a possible Brexit is likely to lead to a pause in occupier activity during Q2 2016. However, we anticipate a rebound in the second half of the year once business confidence resumes.

Opportunities exist for ‘bold’ investors and developers

Grade A office space currently accounts for 22% of the total availability across Leeds and, while 685,000 sq ft of new build space is due to complete during 2016, over 40% of it is already pre-committed. This coupled with the impending introduction of the Energy Act in 2018, which will render it illegal to let or sell properties with an F or G energy performance rating, further reinforces the case for a new wave of speculative development across the city. 

Consequently, those investors and developers with well-located sites and buildings who are bold enough to forge ahead with development and refurbishment projects will reap the rewards as grade A space diminishes even further.

Key occupational transactions, Q1 2016


Property 

Size (sq ft) 

Landlord(s)/vendor

Tenant/purchaser

4th, 5th, & 6th Floors, Building 1, Kirstall Forge
45,079
CEG Zenith
2nd & 3rd Floor, No 6 Wellington Place
39,605
MEPC Hestview Limited (Sky Bet)
5th Floor, Central Square
25,539
M&G/Roydhouse Properties/Marrico
Baker Tilly

Source: Lambert Smith Hampton

City centre headline rents to peak at £30.00 per sq ft

With premium quality space in short supply, prime headline rents in the city centre are expected to reach a new peak of £30.00 per sq ft over the next 18-24 months.

Scarborough’s decision to move forward with Paradigm - a 31,650 sq ft headquarters office building at Thorpe Park - is also likely to set a new headline rent for the out-of-town market when it completes later this year.


Yields set to harden as new developments come online

Investment volumes across Leeds amounted to circa £46.85m in Q1 2016, down 29% on the £65.92m recorded in Q1 2015.  This is due in part to Brexit, as investors seek to reconcile their approach to transactions in the interim.

The historic lack of good quality stock has led to fewer deals by institutional and overseas investors, with offices being traded at pricing levels below other key regional centres such as Manchester and Birmingham.

There has been a lack of recent activity to demonstrate yield movement from 5.25%.  However, with several new developments due to come on line in 2016, this will determine the appetite for stock in Leeds particularly in an uncertain market.

Key investment transactions, Q1 2016


Property 

Value (£m) 

Yield (%) 

Investor

Vendor

St Pauls House, Park Square
23.70 6.00 EPIC UK Ltd
Boultbee Brooks RE
20 Merrion Way
16.00 7.00 Private Spanish investor
CBRE Global Investors
29 Park Place 
3.60 6.00 Private investor
Brabazon Property Inv Ltd

Source: Lambert Smith Hampton 


                             

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Adam Varley | Director - Office Agency | Leeds
Adam Varley

0113 887 6706

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