Leeds was the only property market in the UK’s ‘Big 6’ cities – Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester – to see an increase in prime office rents in the second half of 2016 according to JLL’s new Office Market Outlook report.
Office rents for the best space in the city increased to £27.50 per sq ft, buoyed by a number of significant active requirements and relative scarcity of good quality space.
Jeff Pearey, Head of JLL’s Leeds office, commented: “As a direct result of current market fundamentals – the lack of Grade A space and the strong occupier demand for this quality of space – we saw office rents move up to £27.50 per sq ft in Leeds.”
While 418,000 sq ft of office space completed in Leeds last year, which helped boost supply, the overall office vacancy rate in the final quarter was 6.7% and Grade A vacancy stood at 4.2%. Out of the Big 6 office markets, Bristol currently has the lowest Grade A vacancy rate at just 0.4%, but Birmingham, Edinburgh, Glasgow and Manchester all have Grade A vacancy rates below 2% illustrating the office supply shortage in most of the major regional markets.
Jeff Pearey continued: “In Leeds, there is only one scheme presently on site at No 3 Wellington Place which will deliver 110,000 sq ft of new Grade A space due for completion in December. Platform at Leeds City Station will also deliver a major refurbished scheme to the market this summer. Headline office rents should therefore remain well supported this year, with the supply vs occupier demand dynamics well balanced.”
The regional office market saw strong levels of take-up in 2016 from a broad range of occupiers, with 4.8 million sq ft transacted across the ‘Big 6’ cities – 15% higher than the 10-year average. Professional services accounted for 25% of overall take-up last year, followed by the public sector with 20% (up from 12% in 2015) and the Technology, Media and Telecom (TMT) sector with 16%. With a number of large office requirements in the UK’s regional market, the public sector with 1.5m sq ft of demand is anticipated to continue being a major driver of take-up in 2017.
Office investment volumes across the Big 6 totalled £1.96 billion in 2016 with international investors accounting for 58% of the deals.
In Leeds, 2016 office investment volumes reached £158 million which, while subdued as a result of available office stock, comfortably exceeded the previous year’s total. Overseas money accounted for 52% of all transactions in the city with European and Middle Eastern investors with UK operating partners being particularly active. Office yields were unchanged at year-end, holding firm at 5.5%.
Mat Atkinson, Director in JLL’s Capital Markets team in Leeds, concluded: “The significant proportion of overseas money which came into Leeds last year illustrates the continued draw of the UK regional office market from investors across the globe, largely attracted by the yield gap compared with other European markets and the South East. However, the lack of investable stock remains an issue for the market.”
