Market snapshot

Office Market Pulse Leeds Q2 2016

After a relatively strong start to the year, the Leeds office market saw a marked reduction in leasing volumes during Q2 2016, falling to 149,129 sq ft – 44% below the previous quarter and 28% below the five-year quarterly average; the brunt of which was borne by the city centre, which recorded its lowest quarterly take-up in four years. Conversely, the out-of-town market continued to perform well, transacting more than the city centre for the first time in five years, albeit this was driven by a large number of ‘churn’ deals. 

Despite the general slowdown in activity during H1 2016, occupier sentiment across Leeds remains relatively buoyant. With the impending practical completion of a number of new speculative developments in the city centre and construction of speculative schemes at Kirkstall Forge and Thorpe Park set to boost grade A availability, we are hopeful that H2 will see a return to more ‘healthier’ levels of take-up and enhanced rental growth. 

You can download a PDF version of this Leeds Office Market Pulse, or view Office Market Pulses from other UK centres.

In this issue:

Emerging TMT sector drives growth in out-of-town market

After a relatively strong start to the year, the Leeds office market saw a marked reduction in leasing volumes during Q2 2016, falling to 149,129 sq ft – 44% below the previous quarter and 28% below the five-year quarterly average. 

In the city centre, take-up reached just 73,103 sq ft – its lowest quarterly total for four years. This was due in part to a number of larger deals being delayed in the lead-up to the EU Referendum, with 96% of transactions for less than 10,000 sq ft. 

In contrast, the out-of-town market continued to perform well, transacting more than the city centre for the first time in five years to reach 76,026 sq ft. However, unlike the city centre, the demand profile within the out-of-town market is characterised by a large number of ‘churn’ deals. 

The professional services sector was the most active during Q2, accounting for 37% of the deals transacted, followed closely by the technology, media and telecommunications (TMT) sector at 30%. As an emerging industry, the TMT sector has seen steady growth across Leeds in recent months. Albeit, occupiers in this sector tend to favour a more agile workplace, which is reflected in the location, size and type of space leased. 

Despite the general slowdown in Q2, occupier sentiment across Leeds remains relatively buoyant following the vote to leave the EU and the fundamentals of the office market remain strong. As such, we are hopeful that H2 will see a return to more ‘healthier’ levels of take-up.


Key occupational transactions, Q2 2016


Property 

Size (sq ft) 

Landlord(s)/vendor

Tenant/purchaser

Josephs Well 
14,743
J Pullan & Sons
Plexus Law
2 City West, City West Business Park
10,860
Xlb Property/Harbert Management
Slater & Gordon
3 Sovereign Square
7,939
Bruntwood/Kier
Addleshaw Goddard

Source: Lambert Smith Hampton

Out-of-town market held back by lack of good quality stock

The out-of-town market has been held back somewhat in recent years by the lack of good quality, larger floor plate buildings. However, the speculative developments at Kirkstall Forge and Thorpe Park will hopefully reinvigorate demand from this section of the market going forward. 

Within the city centre, the impending practical completion of a number of new speculative developments will boost grade A supply in Q3 2016.

Rents expected to rise as high-quality second-hand space returns to the market

Rental levels remained flat in Q2, held back due to the absence of any immediately available grade A space. 

While the pre-let market has helped to spur a rental increase both in the city centre and, more recently, in the out-of-town market, a tranche of high quality, well-located, new build space being introduced into the market will further help to enhance rental growth, as new build space becomes more accessible to the wider market rather than just the larger corporate occupiers that are able to use their covenant strength and scale to anchor new build development.


Investment volumes fall but Northern Powerhouse will become a safe haven

Office investment activity across Leeds fell back in Q2, with just one transaction totalling £7m. This slowdown is largely attributable to the general uncertainty before the referendum and resultant reaction to Brexit which has seen values fall.  Sellers and buyers are therefore struggling to 'mark to market' as the political and economic swings make price certainty difficult. 

However, the depth of the regional market as a Northern Powerhouse is likely to provide less volatility for purchasers than Central London and subsequently, opportunities will lie in assets brought to the market which offer a defensive play; a strong indicator of which is Leeds City Council’s agreement to acquire 3 Sovereign Square for £43.7m. The deal, which is due to complete on practical completion in Q3 2016, is thought to be the largest post-Brexit deal in the country, underlining the robust nature of the city as a first-class business destination.


Key investment transactions, Q2 2016


Property 

Value (£m) 

Yield (%) 

Investor

Vendor

Airedale House, Albion Street 7
8 GM Legato Property
Bridges Ventures

Source: Lambert Smith Hampton 

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Adam Varley

0113 887 6706

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Adam Varley
Director - Office Agency

0113 887 6706

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