Market snapshot

Office Market Pulse Leeds Q4 2017

Leeds’ office occupier market witnessed a record-breaking end to 2017 as take-up exceeded the 1m sq ft mark for 2017 as a whole during Q4 but, in stark contrast, investment volumes fell below the five-year average.

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In this issue:

Record-breaking year for the city centre

Occupier take-up in the city centre totalled 216,788 sq ft in Q4 2017, with total annual take-up for the city centre exceeding 1m sq ft for the first time on record. 

Standout transactions included Leeds Building Society’s purchase of 89,654 sq ft at Sovereign House, Sovereign Street in the South Bank and PwC’s acquisition of an additional 11,600 sq ft at Central Square, reflecting the continued confidence in the growth of its regional business.

The out-of-town office market was relatively subdued in comparison, with take-up totalling 55,944 sq ft and only four transactions of more than 5,000 sq ft.  However, the market is characterised by a heavy reliance on ‘discounted’ grade B space and large volumes of smaller transactions, with the average transaction size just 2,152 sq ft.

Professional and financial services accounted for 36% of sector based activity, reaffirming Leeds status as the second largest legal and financial district outside of London.

However, the continued growth of the city’s TMT sector played an important role in boosting the final quarter figures. Take-up from this sector accounted for 25% of overall activity; the majority of which was focused within the South Bank area of the city where the figure rose to 38%.

Balance of supply and demand is becoming an issue

2017 saw some very large deals take place. However, 2018 could be a challenging year for the Leeds office market; not as a result of reduced occupier demand, but due to the lack of supply across the city centre with only three schemes totalling 216,378 sq ft currently under construction. More crucially, the availability of grade A space within the out-of-town market is dangerously low. In the absence of any development activity, those occupiers with less than 18 months remaining until their lease events will not be able to rely on the pre-let market to satisfy demand and may find relocations exceptionally challenging due to diminishing availability.

Respositioned buildings win-out

Headline rents within the city centre remained stable at £30.00 per sq ft and £22.50 per sq ft out-of-town. The real story in respect of rental growth during Q4 however, was for the newly-refurbished and repositioned buildings; with the latest deals at Bruntwood’s Platform reaching £29.50 per sq ft, reflecting only a £0.50 per sq ft (1.6%) discount from headline grade A rents. 

While cost is still a crucial factor, we are increasingly seeing businesses place greater emphasis on other criteria when making relocation decisions; property betterment, staff retention and well-being are gradually becoming more important than the financial aspects of the deal.

Investment volumes down on five-year average

A lack of high quality office stock to meet investor requirements has led to investment volumes being significantly down on the five-year average, at just £17m. 

Key deals included Adapt Real Estate’s purchase of Park Row House, a historic building in the city core which has undergone a full refurbishment, for £8.7M (5.5% NIY) and Topland Group’s purchase of Oxford House, a 33,000 sq ft secondary asset, for £5M (9.25% NIY). 

A number of high profile deals which would add considerably to volume have experienced slippage beyond the year end, such as Pinnacle in the city core and Lateral on South Bank, totalling £92m asking price.  

Refurbishment projects in core locations are witnessing continued demand and the market is now pricing in an element of risk, for example CGU House which was marketed at £170 per sq ft and saw strong interest.

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Adam Varley | Director - Office Agency | Leeds
Adam Varley

0113 887 6706

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Adam Varley
Director - Office Advisory

0113 887 6706

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