Whilst best known for its industrial past, Yorkshire now has a growing reputation as a destination of choice for the creative sector, according to a brand-new report by global property consultancy Knight Frank.
Knight Frank’s Yorkshire Office Market Review 2017, issued today (Tuesday) revealed that last year, firms from the Technology, Media and Telecoms (TMT) sector based in the region contributed close to £4bn to the UK economy.
The review was launched at Aspire in Leeds to an audience of occupiers, investors and developers.
The influx of digital firms to Yorkshire now supports approximately 60,000 jobs, with the number of TMT firms in Leeds and Sheffield specifically rising by almost one third in the past five years alone.
Eamon Fox, partner with Knight Frank in Leeds and leader of the office agency team, commented: “From a property market perspective, the rise of the TMT sector is supporting demand for office space. In Sheffield and Leeds, TMT firms account for 20% – 25% of space let between January 2016 and March 2017. Well-known brands such as SkyBet, WANdisco, Rockstar Gaming and Plusnet all have offices in either Leeds or Sheffield.
“However, the smaller, fast growth companies have been most active with 27% of TMT deals across the two major cities below 5,000 sq ft.
“Furthermore, the tech umbrella is broadening. Organisations whose principal business is not within the technology realm are taking space to support a growing digital arm. The emergence of ‘digital transformation teams’ is increasing aimed at aligning companies from traditional banking to the public sector with the digital age.
“Global and national firms such as Asda Walmart, DLA Piper, Lloyds, BAE Systems and the NHS all have technology operations within the region. With both primary and secondary technology streams growing, office demand to support digitally-based activities will continue to rise in tandem, added Mr Fox.
Other key trends identified in the report were the changing face of the modern office, which has now become a significant means by which to attract and retain valued staff; the huge pool of talent in Yorkshire, nurtured by no less than 11 universities, which provide a solid foundation of students to support the future needs of business; and the quality of life offered by Yorkshire, where the combination of the relatively low cost of living, the superb transport links, the excellent retail and leisure offering of the main cities and the beautiful countryside, is unbeatable.
The report reveals that whilst the creative sector is flourishing, the low supply of offices in Leeds and Sheffield is supressing investment activity. Investment volumes remained on par with the long-term trend in 2016 reaching £175m by year-end.
Henrie Westlake, head of investment at Knight Frank in Yorkshire, explained: “A further £34.7m of office stock sold in the first quarter of 2017, consistent with the 10-year quarterly average. Although the recent level of investment suggests steady levels of activity, volumes have largely been supressed by a lack of opportunity in the market, particularly prime assets. As such, secondary assets are gaining greater attention, predominantly where active management adds value.
He added that overseas demand, particularly for prime assets, remains strong in Leeds driven by a favourable exchange rate.
Meanwhile office deals in Yorkshire have been hindered by political events durung the past 12 months, according to Elizabeth Ridler, office agency partner at Knight Frank in Leeds.
She commented: “However, Q2 2017 will represent a return to an upward trajectory. Analysis of deals already completed in Q2 indicates that take-up could reach 160,000 sq ft for the quarter, 29% above the 10-year quarterly average. Significantly, around 750,000 sq ft of active demand remains unfulfilled, the highest single total on record. This means that 2017 return take-up levels significantly above trend.
“Rents are rising, too. The lease of 46,000 sq ft at 6 Queen Street to a confidential FTSE 100 firm has established £30 per sq ft as prime rent on new space. Supported by recent transactions, prime rents will increase in Q2 2017 from £27.50 per sq ft to £28 per sq ft for prime Grade A space and up to £30 per sq ft for exceptional space”.
She added: “This movement re-establishes the gap between good quality secondary and prime space, with rents on good quality secondary space having increased to £26 per sq ft in recent months.”
In Sheffield, occupier activity increased sharply in the first quarter of 2017 as several large transactions completed.
Peter Whiteley, head of the Sheffield office, said: “With 33 occupier deals completing, Q1 2017 recorded the city’s highest level of occupier take-up for two years. A total of 170,000 sq ft transacted during the first quarter, more than double the 10-year quarterly average for the city.
“Prime city centre Grade A availability fell to just 150,000 sq ft in Q1 2017, the lowest level on record for the city. This total is 46% below the long-term average. However, a further 240,000 sq ft of good quality city centre secondary space and Grade A on the city fringe space is available.
“Forecasts indicate a prime rent of £24 per sq ft by year-end rising to £25.00 per sq ft by the end of 2018/2019.”
In 2016, total investment volumes in Sheffield increased fourfold to reach £83m by year-end, a total 60% above the 10-year average. This represented the highest level of office investment in Sheffield for six years. Investor interest has continued into 2017, as a result, the second quarter has seen £28m of stock sold across four deals, with a number of others imminent – this total is almost double the long-term quarterly average.
Foreign investment accounted for the largest percentage of turnover, 61%. The £68 million spent is the highest level of overseas investment into Sheffield offices on record.
