Market snapshot

Office Market Pulse Leeds Q4 2016

The Leeds occupier market saw a sluggish fourth quarter for office take-up, marking the end of an uncertain year. Nevertheless, the outlook for 2017 remains encouraging with the continuation of speculative development, the anticipation of an announcement of the pre-let to Government Hub requirement and the growth of the out-of-town market. 

Amidst a difficult political and economic year, SME occupiers accounted for 80% of all transactions and, in particular, the TMT sector continues to make an important contribution to the office market, representing 26% of all transactions during 2016. 

Rents continue to move in an upward direction, with the city centre achieving a new headline of £27.50 per sq ft and, while the out-of-town markets have remained stagnant at £18.00 per sq ft, the completion of Paradigm at Thorpe Park and development at Kirkstall Forge is likely to initiate rental growth throughout 2017.

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In this issue:

Sluggish Q4 but promising signs for 2017

Office occupier take-up across Leeds city centre totalled 109,682 sq ft in Q4 2016, a fall of 12% from the previous quarter.  Grade A space accounted for 71% of activity, illustrating occupiers’ continued appetite for modern office accommodation.  Professional and Financial Services continued to dominate the market, accounting for 48% of transactions combined. However, the TMT sector remains increasingly important, representing 24% of the total transactions.

Out-of-town, take-up was down some 50% on the previous quarter, reaching just 28,942 sq ft.  Indeed, 95% of all transactions were for space sub-5,000 sq ft, which explains the somewhat poor performance.  In line with the city centre, the TMT sector was a key contributor of activity, accounting for 50% of the transactions concluded. 

While the EU Referendum result may have dampened occupier confidence, the structural imbalance and lack of significant lease event activity was the greatest barrier to the growth of the city centre office market during 2016.  Conversely, the out-of-town market performed relatively well, up 14% on 2015’s total and above the 10-year average.

Looking ahead, 2017 has the hallmarks to be a phenomenal year for Leeds’ office market.  With the anticipated Government Hub requirement, a raft of upcoming lease events, and the relative ‘value for money’ the city offers occupiers looking to rebalance their UK footprint, the city is well-positioned for growth. 

Key occupational transactions, Q4 2016


Property 

Size (sq ft) 

Landlord(s)/vendor

Tenant/purchaser

1 Victoria Place
22,685
Patrick Properties
Medical Protection Society 
Pt 6th Floor, Central Square
12,755
M&G / Marrico
BDO 
2nd Floor, City Point
11,146
Redefine International
Blacks Solicitors 
9th Floor, Platform
9,720 Bruntwood
Shoosmiths 

Source: Lambert Smith Hampton

Emerging South Bank district will be catalyst for growth

Following the completion of Central Square and No.6 Wellington Place, office availability across Leeds city centre saw a marginal increase in Q4 2016, rising to 1.36m sq ft. Grade A space accounts for 46% of total availability, the majority of which is located within the West End and Traditional Office Districts, albeit concentrated in a handful of larger buildings. There are currently four buildings under construction or refurbishment in the city centre, which will provide circa 285,000 sq ft of grade A office space during 2017.

At the start of 2017, the Retail District, Arena Quarter and South Bank had a circa 117,000 sq ft of grade A space available, spread across a number of smaller buildings. However, the progress being made by Vastint at The Brewery site and CEG at the Temple Quarter will have a major impact on the growth of the city centre’s emerging South Bank district.

Following the lettings to Lowell at Leeds Valley Park, the majority of the out-of-town market’s grade A space has been taken-up. However, the completion of Paradigm at Thorpe Park in Q4 and CEG’s Kirkstall Forge still offers choice to companies looking for grade A space, with the convenience that the out-of-town market can offer.

City centre sees new headline rent

Q4 saw rental growth within the city centre, with headline rents increasing to a new peak of £27.50 per sq ft at the recently completed Central Square.  While grade B rents remained relatively stagnant, rents for buildings that have been significantly refurbished have generally increased. Indeed, rents for good-quality, refurbished buildings are currently in the region of £25.00 per sq ft.

The out-of-town market remained stable, with prime headline rents currently £18.00 per sq ft.  However, we anticipate that rents will improve throughout 2017 as new grade A space comes online.

Office investment volumes impacted by smaller lot sizes

Office investment activity was subdued across Leeds during Q4 2016, with relatively smaller lot sizes transacted.

Indeed, all of the deals that completed were sold for sub-£10m, reflecting the sales that did not manage to transact before the year end.

While the ongoing Brexit negotiations will no doubt create uncertainty for some, it is also likely to open up opportunities to a wider investor base. As a result, we anticipate renewed activity during the first half of 2017.

Key investment transactions, Q4 2016


Property 

Value (£m) 

Yield (%) 

Purchaser

Vendor

Lowfields Business Park
7.55
6.63
Undisclosed 
Private trust
163-167 The Headrow
6.68
9.00
Kier Property
Hudson Advisors UK Ltd

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 Agency

0113 887 6706

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