Market snapshot

Office Market Pulse Leeds Q4 2015

The Leeds office market witnessed an exceptionally strong fourth quarter in 2015. Notwithstanding BSkyB’s circa 97,000 sq ft pre-let at Leeds Dock, activity was driven almost entirely by churn deals.  While this is indicative of the strength of the city’s SME sector, it also reflects the lack of readily available large floor plates and limited speculative development, which is hampering corporate activity.  Most of the schemes under construction will reach practical completion in early 2016 with almost two thirds already pre-let, leaving just 14 months supply based on the five-year average annual take-up.   

Network Rail’s extension of the ground lease on City House offers a glimmer of hope, enabling Bruntwood to forge ahead with its proposed redevelopment of the 121,000 sq ft office building. However, if demand continues in the same vein, then we could be looking at a situation where grade A supply is all but eroded by the end of the year.  

You can download a PDF version of this Leeds Office Market Pulse, or to read and sign-up to Office Market Pulses from other UK centres, click here.

In this issue:

Highest quarterly office take-up for two years

Leeds city centre office take-up reached 267,187 sq ft in Q4 2015 – a fraction below the highest quarterly take-up ever recorded of 284,067 sq ft in Q4 2014.

Q4 was also the out-of-town market’s best performing quarter of 2015, with take-up totalling 98,490 sq ft, albeit some 16% less than the same period in 2014.

Activity in both markets was almost entirely driven by churn deals, which is reflective of the lack of readily available large floor plates and limited speculative developments. Of the 75 deals to complete, eight were for space above 10,000 sq ft, including BSkyB’s pre-let of circa 97,000 sq ft at Leeds Dock in the city centre. The largest out-of-town deal was LSH’s letting of 16,122 sq ft at One City West to Cascade HR.

The primary trigger which prompted the most acquisitions of office space over 5,000 sq ft in the city centre during Q4 was lease events at 59%, while the primary driver which influenced the final decision was specific physical need at 41%. 

Looking back across 2015 as a whole, take-up in Leeds city centre reached a total of 680,105 sq ft - nearly 42% ahead of the five-year annual average of 480,000 sq ft. Total out-of-town activity for 2015 reached 280,347 sq ft – the highest annual take-up for two years, highlighting an underlying confidence returning to the occupier market.

Less than 14 months grade A supply remaining

Less than 14 months grade A supply remaining Grade A space now accounts for just 5% of Leeds’ total available stock. A further 540,000 sq ft is under construction and expected to reach practical completion during the first half of 2016. However, almost two thirds of this is already pre-let, leaving 357,000 sq ft available - 14 month’s supply based on the five-year annual average take-up figure. 

While the refurbishment of 6 East Parade (45,000 sq ft) and Concordia Works (14,000 sq ft) will provide a welcome boost to the grade A supply, the only additional scheme likely to come forward in the near future is City House. Following Network Rail’s extension of the ground lease, Bruntwood will undertake an extensive refurbishment of the 121,000 sq ft office building.


Key occupational transactions, Q4 2015


Property 

Size (sq ft) 

Landlord(s)/ vendor

Tenant

Leeds Dock
97,022
Allied London
BSkyB
One City West
16,122

Burford Group (on behalf of fixed charge receivers)
Cascade HR
1 City Walk
14,471
BMO Real Estate
Harrison Goddard Foote
21 Queen Street
13,000
Formal Investments
University of Leeds

Source: Lambert Smith Hampton



City centre headline rents to reach £30 per sq ft in 2016

Despite the continuing decline in grade A space, prime headline rents in Leeds city centre remained stable at £27.00 per sq ft in Q4 2015. However, we anticipate this will move closer to £28 per sq ft, if not £30 per sq ft for some boutique suites, as we move through 2016. 

Grade B+ space and high quality refurbishments have shown the most positive increase in rents. Legal & General’s investment in the continued refurbishment of 9 Bond Court is a clear illustration of this, with headline rents increasing by 40% from their previous peak. 

Prime headline rents in the out-of-town market currently sit around £17.50 per sq ft with little rental growth expected throughout 2016 until the stock is introduced to the market.


Lack of stock brings investment market to a halt

After an impressive third quarter, the Leeds office investment market came to a grinding halt in Q4 2015; a product of the limited stock coming through rather than lack of demand. 

With prime office yields standing at c. 5.25%, Leeds still represents good value compared to London and, a lesser extent, Manchester. As such, we expect investors to take advantage of the asset management opportunities available in order to drive returns.

View the latest edition of our UK Investment Transactions (UKIT) report.

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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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