The UK regions, including Yorkshire, look set to become the property winners of 2015 with a more diverse range of investors seeing value outside of London and the South East according to property agents JLL.
JLL’s preliminary investment volume figures revealed a bumper 2014 for Yorkshire with around £1.4 billion of commercial property investment transacted with the property agent predicting that activity will be strong again this year in the region.
Andrew Summersgill, director in JLL’s Investment team, said: “We have seen a boom in investment volumes over the last couple of years and anticipate another healthy year in the Yorkshire property market although we are unlikely to repeat the same levels as 2014. One reason for this is the political uncertainty around the May election, which is the hardest to call in living memory and may lead to a pause in market activity.”
JLL also predicts that there is likely to be increasing activity in the secondary property market which may become more attractive given the yield gap between it and prime.
Andrew Summersgill continued: “With the weight of money there is a strong story for some further yield compression however the momentum will not be maintained. Total property returns in 2015 are as likely to be driven by rental performance as yield shift which makes the supply/demand and dynamics of the occupational market just as important to investors.”
Looking at the office development pipeline, the Leeds market, according to JLL, has historically been feast or famine in terms of the construction of new supply. Richard Thornton, director in JLL’s Office Agency team, points to the unprecedented level of speculative office development activity currently underway in the city whilst maintaining that there is still a strong business case for bringing more space to the market in 2017/18.
Richard Thornton said: “Currently, there is around 455,000 sq ft of pure speculative development on site in Leeds city centre. Of this, some 160,000 sq ft is already spoken for with ongoing pre-lets/negotiations resulting in circa 300,000 sq ft of grade A space coming on stream by mid-2016. With current take-up levels this space will let within 12 months of practical completion, if not earlier, so there is a case for developers to bring more speculative space to the market within the next two years.”
Lack of supply is already leading to reduced incentives in the regional markets and JLL predicts that over 2015 there will be a return to headline rental growth in Leeds with office rents likely to break through the £27 per sq ft barrier. Upcoming lease events will fuel demand from corporates which combined with demand from the professional sector means JLL is predicting city centre take-up to certainly exceed volumes transacted in 2014.
Jeff Pearey, JLL’s lead director in North East, concluded: “Leeds has very strong credentials and market fundamentals to sell and the Leeds City Region LEP is really starting to motor. We all have our part to play in what looks set to be a very positive year.”
