Experts at DTZ in Leeds review the 2014 commercial property market and look ahead to 2015:
Yorkshire investment market
‘Strong activity levels to continue across all major market sectors’ – Richard Brooke, Senior Surveyor in DTZ’s Investment team in Leeds comments:
“Regional investment markets have experienced a dramatic improvement in 2014. Focussing on the Leeds city centre office market, H1 of 2014 witnessed a sharp increase in investor demand for the city’s prime assets as investors started to look to the regions in search for greater yield returns, as pricing in London and South East markets became very competitive. With a restricted volume of investment stock this lead to a sharp rise in pricing for the city’s top assets. As prime yields were driven down investors started to move up the risk curve, generally more willing to compromise on tenancy risk (such as shorter lease terms or part vacancy) rather than building fundamentals such as location and build quality, although clearly every investor has their own criteria.
In Q2 and Q3 we saw some very strong deals completed, most notably Lisbon House, a slightly fringe location, let to HBOS with approximately 9 years unexpired, this was sold off market to Portman Estate in June for c£8.76million reflecting 5.58%. This deal helped set a milestone for prime yields for Leeds offices and whilst tracking other regional markets the general consensus is that prime yields in Leeds have trended inwards to 5.5%, a 75 basis point improvement since the start of the year. The other key deal was the sale of Yorkshire House which was sold in September by DTZ. This was a key deal in that bidding was highly competitive delivering a purchase price of over £17million, significantly head of the quoting price of £15.35million (6.5%NIY). The building had been part refurbished and still provided a lot of letting risk as well as refurbishment works, this demonstrated the market shift up the risk curve.
Off the back of these two deals, Q4 saw a high volume of city centre offices offered to the market which somewhat overwhelmed the market and temporarily reversed the supply and demand relationship. This is a result of over quoting in some instances with pricing driven off the back of some strong deals earlier in the year. The volume of stock available has diluted the market with investors being afforded the opportunity to choose between which assets they pursue for the first time this year. Having said that, we feel that prime yields are stable at 5.5% for the city centre offices and once some of the current stock starts to get absorbed then we expect that the balance between supply and demand will be restored. Looking forward to 2015, we expect strong activity levels to continue across all major market sectors.”
Yorkshire industrial market
‘Take-up of large sheds in 2014 reached an 11 year low due to a lack of grade A stock’ – Paul Mack, Director and Head of the Yorkshire Industrial & Logistics Agency Team:
“Take-up in 2013 broke a five year record with approx 4 million sq ft (for buildings over 100,000 sq ft) being transacted. The average take-up over the previous five years being circa 3.5 million and many leading figures predicted a slightly slower take-up in 2014 with stock continuing to dwindle.
Take-up figures however for 2014 will reach a record low (since DTZ records began 11 years ago) with just 2 million sq ft across 11 transactions (9 of 11 transactions being retail driven). A lack of available Grade A product is certainly a contributing factor together with the huge take-up of large scale buildings over the past six years.
Highlight transactions in 2014 include Great Bear acquiring 412,000 sq ft in Sheffield, Victoria Plumb acquiring 275,000 sq ft at Firstpoint in Doncaster and UK Greetings Cards acquiring 205,000 sq ft in Dewsbury.
Supply levels have fallen from 3.8 million sq ft in 2013 to 2.7 million sq ft going into 2015, although this includes four tertiary / Grade C buildings totalling 514,000 sq ft, which leaves only seven Grade A buildings which includes 550,000 sq ft in Sherburn in Elmet.
Other major news in the Yorkshire region is Next plc acquiring 40 acres at Westmoor Park in Doncaster to build circa 650,000 sq ft and Haribo building their 330,000 sq ft new production facility at Wakefield Europort.”
Leeds office market
‘Leeds office take-up figures may be down from last year but 2014 has seen a return to speculative development’ – Mark Holmes, Surveyor in DTZ’s Office agency team in Leeds
“In 2013 we saw a record take-up of 800,000 sq ft for Leeds city centre fuelled by once in a generation lease events. It was always acknowledged that 2014 was always going below this. Although we have seen 388,000 sq ft of offices transacted in Q1-Q3 2014 and expect the figure to be in excess of 500,000 sq ft, the 10 year average, and possibly in higher of 600,000 sq ft dependent on pre-let activity.
The good news has been the return to speculative development with 6 Wellington Place, 3 Sovereign Square, 6 Queen Street and Central Square all starting on site during 2014 with these buildings completing in 2016 the last speculative development was delivered to the market during 2009. This has been caused by the supply / demand imbalance which has been discussed for the previous years. The majority of this demand has been for Grade A product with large floor plates with many occupiers having now to consider pre let options due to the lack of suitable stock. This shortage initially drove incentives down and subsequently we have seen power swing back to the landlord with rents growing and Landlords only willing to accept straight 10 year term on certain product. In the Grade B & C office sectors we have seen in excess of 100,000 sq ft of city centre space being converted under Permitted Developments rights to Residential schemes although this still favours the tenant.
Two transactions of note in Leeds have been lettings to Sanef (25,000 sq ft) and Wage Day Advance (21,000 sq ft) despite not being the largest or at the highest rent. These have brought inward investment into Leeds, which is not historically seen as a strength of Leeds, and it is hoped that this will continue. Enquiry schedules are also showing this with companies named on these who historically don’t have a presence in Leeds looking to ‘Northshore’.
Moving into 2015 we will see a number of lease events that will continue to fuel take-up.”
