Market snapshot

Office Market Pulse Leeds Q1 2017

Following a quiet H2 2016, the total volume of office space leased across Leeds during Q1 2017 reached 160,679 sq ft – an increase of 16% on the previous quarter. While the level of activity was mostly on par with previous quarters, the lack of larger deals was hugely noticeable, with 82% of all transactions for space sub-5,000 sq ft.

The TMT and Professional Services sectors continued to increase their share of the market, accounting for 56% of the total number of deals, while there was a marked reduction from the historically active Finance, Banking and Insurance, and Public, Not-for-Profit and Charities sectors, which accounted for just 2% of the total number of deals.

While prime headline rents have remained stable, we anticipate steady growth and a marginal decline in incentives in the coming months as the supply of immediately available grade A space is taken-up. Encouragingly, however, office development across the city has now reached a three-year high, with the total new stock under construction standing a 438,259 sq ft, which should temper this somewhat.

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In this issue:

Solid take-up despite lack of larger transactions

Following on from what was a very quiet H2 2016 in terms of occupier demand, the total volume of office space leased across Leeds during Q1 2017 reached 160,679 sq ft – an increase of 16% on the previous quarter but down some 39% year-on-year.

While the level of activity was mostly on par with previous quarters (41 deals in Q1 2017 compared with 44 in Q1 2016), the lack of larger deals was hugely noticeable, with 82% of all transactions for space sub-5,000 sq ft, compared with 67% in the same period last year.

The TMT and Professional Services sectors continued to increase their share of the market, accounting for 56% of the total number of deals, while there was a marked reduction from the historically active Finance, Banking and Insurance, and Public, Not-for-Profit and Charities sectors, which accounted for just 2% of the total number of deals. This has had a significant impact on the take-up figures across the Central Business District, which was more than half that of Q1 2016.

Despite this apparent ‘cooling’ across the more traditionally active areas of the city centre, momentum continues to build within the emerging South Bank district, reinforcing its potential as a catalyst for the future growth of the city. However, some form of investment from the public sector, such as the commitment to the delivery of the new HS2 station (Yorkshire Hub), will be required to stimulate further development.

Looking towards the second half of 2017, we expect conditions to improve as the upturn in enquiries witnessed in Q1 filters through into the take-up figures. 

Key occupational transactions, Q1 2017


Property 

Size (sq ft) 

Landlord(s)/vendor

Tenant/purchaser

Third and fourth floors, 5 Wellington Place 
25,968
MEPC
Willis Towers Watson
1 Apex View
22,441
Square Metre Properties
BW Legal
Third floor, Apsley House
10,000
Pullans
Infinity Software

Source: Lambert Smith Hampton

Office development reaches three-year high

Office development across Leeds reached a three-year high during Q1 2017, as the total new stock under construction increased by 11% on the same period in 2016, to 438,259 sq ft.  The majority of this activity is focused within 5 buildings in the city centre located around the West End and Central Business District with the Retail District and Arena Quarter suffering from little or no grade A accommodation, despite steady levels of take-up over the past year.

Within the out-of-town markets following the completion of Paradigm in Q4 2016 there is only 1 office building under construction, CEG’s No1 Kirkstall Forge, which is due for completion towards the end of 2017.

Conversely, the apparent ‘flight to quality’ of occupiers during recent years has left the Central Business District with a glut of grade B/C space which has the potential for either refurbishment or conversion to alternative uses, as evidenced by CBREI’s redevelopment of the former Lloyds Bank HQ at 7 Park Row.

Leeds remains attractive location for occupiers seeking value for money

Prime headline rents have remained stable over the past twelve months, making Leeds an attractive location for occupiers seeking out value for money in terms of office, labour and housing costs. In addition, when the impact of the business rates revaluation starts to filter through this will further strengthen Leeds’ position.

Looking forward, we anticipate steady rental growth and a marginal decline in incentives in the coming months as the take-up of prime space continues to erode supply.

Post Referendum return for overseas investors

Overseas investors made their first return to the Leeds office market since before the EU Referendum, accounting for 70% of the total spend during Q1 2017.

While the number of deals completed was in line with the same period in 2016, with some of the city’s most prestigious properties changing hands, the total investment volume was down some 58%.

With the continued low interest rates and a lack of alternatives, well-let buildings with solid unexpired lease terms are likely to attract significant interest throughout the rest of 2017.

Key investment transactions, Q1 2017


Property 

Value (£m) 

Yield (%) 

Purchaser

Vendor

Toronto Square
22.0
4.45
JP Morgan Asset Management
M&G Property Portfolio

121-131 The Headrow
6.0
Undisclosed
Wilton Developments
LaSalle Investment Management
27 Park Row  
3.0 6.1  Undisclosed 
Private investor

Source: Lambert Smith Hampton

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Adam Varley | Director - Office Agency | Leeds
Adam Varley

0113 887 6706

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Adam Varley
Director - Office Advisory

0113 887 6706

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