The first quarter of 2018 was the strongest in the city centre for five years and, while the out-of-town markets were slightly muted in comparison, combined take-up was 275,691 sq ft; up some 72% year-on-year.
Our latest Leeds Office Market Pulse also revealed there was a real depth to activity with a total of 52 deals completed during the first quarter, underpinned by the strength of the professional services sector which accounted for 27% of the total number of deals. The financial services and TMT sectors were also particularly active during the quarter and, together, accounted for a third of all transactions.
Notable transactions included law firm Walker Morris’ acquisition of 33 Wellington Street (formerly known as Benson House), where it will consolidate its 500 staff under one roof and Dart Group’s (Jet 2) expansion at The Mint, where it acquired the remaining 48,272 sq ft.
Almost 65% of the total space transacted during the quarter was for grade A quality, which has impacted significantly on supply.
Across the city centre, available grade A supply fell by 4% to 575,873 sq ft, while new space under construction fell by 51%. Out-of-town, the situation is far more intense, with just two buildings immediately available providing a total of 68,000 sq ft of grade A space available and no new space currently under construction.
Consequently, occupiers seeking substantial amounts of grade A office space will be faced with limited options and may have to seriously consider longer-term pre-lets to satisfy future occupation requirements. The situation is exacerbated when trying to attract large-scale inward investment as, without space being available, businesses may discount Leeds in favour of those cities where space is abundantly available
Given the pinch in supply and shift in businesses occupation requirements, repositioned grade B buildings are continuing to perform well, seeing solid rental growth with rents now rivaling those of new build grade A space. This is likely to continue to pave the way for further refurbishments which will alleviate some of the pressure within the market. However, these buildings tend to have ‘smaller’ floor plates and, while the composition of demand tends to be for space in the sub-5,000 sq ft size range, the market needs new large schemes to cater for the ‘corporate’ market, if Leeds is realistically going to grow in line with the City Council’s 2023 Inclusive Growth Strategy.
Adam Varley, Director at LSH’s Leeds office, commented: “The Leeds office market picked up where it left off in 2017, with another exceptionally strong quarter’s take-up activity.
“The two major lettings to Walker Morris and Dart Group reinforce the positive sentiment within the Leeds City Region economy; however there is still a real depth to the overall activity with a high number of transactions.
“While the market has clearly got off to a strong start, the emerging imbalance between supply and demand is likely to have a negative impact on activity towards the end of the year, as existing supply is removed from the market.”