Leeds is in danger of losing out to other regional markets because recent successes in securing new office occupiers have drastically limited quality office stock availability in the city. That is according to Roddy Morrison, Head of Offices at Colliers International, Leeds which has just revealed its latest Net Stock Absorption (NSA) study for the first half of 2013.
The study shows that the Leeds office market has heralded the strongest levels of Grade A take-up and absorption since before the onset of the credit crunch. Grade A absorption (physical occupation of available stock) reached 127,348 sq ft, which is the highest figure since June 2007 and the largest half year take up of the ‘big six’ regional markets. Indeed, central Leeds office take up in the first half of 2013 was more than the entire figure for 2012 and take-up of offices in central Leeds has now risen in each of the last seven half year periods. There were nine significant deals above 10,000 sq ft compared to just seven for the whole of 2012.
The recent acquisition of 76,413 sq ft at Broad Gate in Leeds for Yorkshire Building Society, brokered by Colliers International in May, was the largest single office transaction in central Leeds for almost 10 years. Dart Group (Jet 2) also agreed terms for 73,100 sq ft at The Mint and KPMG took a pre-let for 61,250 sq ft at Sovereign Square. Subsequently Grade A vacancy rates in central Leeds are now at the lowest level since before the down-turn…. 7%, and reducing.
Roddy Morrison comments, “This success is fantastic for Leeds but as a consequence we have now reached a ‘tipping point’ in terms of supply and demand. The city is now really lacking in Grade A and decent Grade B available office stock, with many of the buildings ripe for refurbishment not available until after existing occupiers vacate to new build solutions in 2015-2017.
“We need more stock and speculative development is key. We are now in a pre-letting market and those who dare will win. The ‘ground –up’ pre-let is however a complete rarity. There is tangible evidence that occupiers will commit at an early stage, but only where they have something that is truly deliverable. As such even where ‘speculative’ development is underway, we would only anticipate modest amounts of space will come to the market upon completion.
“Manchester & Birmingham have experienced similar success over the last two years and are more able to sustain delivery against demand with more existing stock but also, crucially, they have speculative schemes coming out of the ground. Leeds will soon be at a competitive disadvantage to attract true foot loose occupiers, despite the fact that occupation costs are much lower than other major markets.
“It is encouraging that MEPC has begun part speculative construction at its 10 Wellington Place scheme where a pre-let of 15,157 sq ft to law firm Shulmans has already been agreed but less than 20,000 sq ft of speculative space remains available now for occupation after completion.”
Colliers’ NSA monitors changes in office occupation levels by showing the net change in total occupied stock within a given market. It provides a much more accurate report of occupancy by analysing actual take up against changes in stock availability. Although a vital barometer for North American markets, Colliers International remains the only UK property consultancy to conduct NSA analysis of key regional markets.
The report also shows that total absorption across all Grades in the first half of 2013, for Leeds as a whole, was lower at 83,661 sq ft caused by the release of Grade B space in core locations. City core take-up reached 294,408 sq ft in the first half of 2013, a rise of nearly 100% on the previous six months and core availability is down by 16% year on year. For occupiers seeking 20,000 sq ft over not more than two consecutive floors, just four options are available within the City core and a further two units within the Southern Gateway. Outside the City core there is just 59,889 sq ft of Grade A quality office space.
Despite falling vacancy, prime rents remained unchanged between £25-£26 per square foot with the highest figure this year (£25 psf) being achieved at the Leeds City Council/Sovereign Leeds/Muse Developments Sovereign Street scheme that was pre-let to KPMG.
Morrison continues, “While net effective rents have helped to bolster headline figures during the downturn, dwindling options for occupiers are likely to embolden landlords to act. Incentive packages are now starting to be reined in, which will continue over the next 12-18 months. Rental uplifts can however only be substantiated in strong locations where quality product can help push the envelope.”
Morrison concludes, “Healthy demand for space looks set to continue with a number of occupiers currently considering the viability of pre-commitment options, on limited sites, versus an acute shortage of currently available property. Investor appetite for regional product continues to grow with a weight of money starting to trigger vendor activity. This is highly encouraging and we would hope that that this should motivate developers to follow MEPC with more speculative activity.
Serious occupiers need to meaningfully engage now before they lose out. Failure for occupier and developers to do so will mitigate the recent successes within the central Leeds office market and see our city lose out the other centres within the next 12-24 months.”
