Following a slightly muted Q1, the out-of-town market saw more activity than the city centre in Q2, recording its highest quarterly take-up since Q4 2013, according to our latest research.
Employment growth leads to increase in demand for office space
Our Q2 2018 Leeds Office Market Pulse also revealed that the strong growth in employment generated by office-based occupiers, particularly from those from the Information and Communication, and Financial Services sectors, has led to increased demand for office space, with 62 deals completed during the three months to June 2018. Indeed, almost three quarters of all transactions over 5,000 sq ft were from businesses seeking additional space for expansion.
Notable transactions include media company, Perform Group’s lease of 39,422 sq ft at White Rose Office Park, Investec’s acquisition of 20,402 sq ft at 3 Wellington Place and Lowell Group’s acquisition of an additional 16,617 sq ft at Leeds Valley Park.
Occupiers should start looking to commit to pre-lets now
The market continues to be characterised by a rapidly diminishing supply of good quality space, with city centre grade A availability currently standing at 520,747 sq ft. With the exception of Rushbond’s Majestic scheme in the city centre, there is no further large scale speculative development activity underway.
While this is not an immediate problem, occupiers with significant lease events over the next 12-18 months will need to consider committing to a pre-let now if they are to secure the best quality space. This could also hinder any future footloose inward investment activity which is unable to rely on the pre-let market.
Occupiers perceive value in top quality space
Headline rents for grade A space in the city centre remained at £30.00 per sq ft, albeit £34.00 per sq ft is reported to have been achieved at Platform, Bruntwood’s highly successful scheme located directly above Leeds City Centre Railway Station.
The out-of-town market has principally been held back due to the continued absence of any grade A supply and, while headline rents have been achieved at Kirkstall Forge and Thorpe Park, the market as stagnated slightly as a result. However, as new phases of development come forward, we anticipate rental growth will start to return.
Adam Varley, Director of Office Advisory at LSH Leeds, commented: “The continued growth of home-grown businesses and general ‘churn’ from lease events has led to an incredibly healthy period of activity within the Leeds office market, with almost 600,000 sq ft of space transacted in the first half of 2018 alone.
“The rental performance of buildings like Platform also reinforces the notion that businesses are prepared to pay premium rents for space in a building which reflects their brand and core values.
“However, we are now on the verge of witnessing an extraordinary juxtaposition where relatively high levels of demand for office space could potentially be restrained by the limited availability of good quality stock, particularly in light of the recent announcement that Leeds has been shortlisted as a potential location for Channel’s 4 new national headquarters. Landowners, developers and investors must work together to bring forward more sites if the city is to meet growing demand and maintain competitiveness.”