DTZ Research’s Property Times report for Leeds for Q2 2014 has shown an increase in pre-let requirements in the Leeds offices market.
· Sentiment is on the rise now that the local economy is unambiguously in recovery. After a record-breaking volume of deals in 2013, city centre take-up returned to more typical levels in the first half of 2014. Of the 258,000 sq ft transacted, there was a range of all grades.
· There has also been a range of active business sectors so far in 2014. TMT has had somewhat of a revival, notably demonstrated by Sticky Eyes’ 12,000 sq ft expansionary move to 100 Wellington Street in Q1. In an inward move, wealth management firm Ashcroft Rowan took 11,000 sq ft at 29 King Street in Q2.
· Well-located grade A space is still limited, and this is despite 115,000 sq ft of new grade A refurbishments brought to market in Q2, along with 110,000 sq ft of grade B space. However the main feature of the last two months has been a significant increase of pre-let requirements, totalling in excess of 300,000 sq ft. These are related to a series of lease events over 2015-16 in the financial services and legal sectors.
· The development pipeline has responded. For example, No. 6 Wellington Place (105,000 sq ft) is under construction and due for delivery in December 2015. Similarly, Wellington Street (220,000 sq ft) is due to be delivered in Q1 2016. Sovereign Square, Sovereign Street (95,000 sq ft) has detailed planning consent and construction is due to start in December 2014 for delivery in Q2 2016.
· Prime headline rents were £25 per sq ft in Q2, but pre-lets are expected to be signed at £27 per sq ft, which is where Leeds rents will be at the year-end.
· Investor sentiment in the regional office markets continued to be strong in the first half of 2014. Some prime yields in the regions are expected to tighten in the second half of 2014, but the weight of money continues to push investors up the risk curve. Secondary yields are set to continue falling this year and next.
· Adam Cockroft, Director, Office agency at DTZ in Leeds comments: “The first half of 2014 in Leeds has seen confidence building in the city centre offices market. This has manifested itself in the decision made by two developers, MEPC and Bruntwood, committing to speculatively develop 104,000 sq ft and 80,000 sq ft of new office space.
“In respect of current availability, there is a shortage of grade A space in the city centre with around 275,000 sq ft remaining. In the first half of 2014, city centre take-up was 258,000 sq ft, in line with the 10 year annual average of 500,000 sq ft which was swelled by last year’s bumper take-up of around 800,000 sq ft. This figure could grow, dependent on pre-let activity with numerous occupiers in advanced discussions on several sites.”
· Tim Cameron-Jones, Senior Director, Investment agency at DTZ in Leeds adds: “Investors are now following the improvement in occupational market sentiment in Leeds city centre, by bidding very strongly on available product. We have seen exceptional levels of bidding on our recent city centre sales, where buyers can still see opportunities to create value through active management and upwards movement in rents. We do not anticipate any letting up of investor appetite over the summer period as the weight of available funds continues to chase a limited number of opportunities which represent value to investors.”
