Three long-standing records were broken as the Leeds office market enjoyed a buoyant 2017, according to leading global property consultancy Knight Frank.
For the first time ever, office take-up in Leeds passed the 1m sq ft mark in 2017. This total is more than double the amount registered in 2016 and is 88 per cent ahead of the 10-year annual average for the city.
Meanwhile the Government Property Unit (GPU), on behalf of HMRC and the Cabinet Office, agreed terms for a 25-year lease on 378,000 sq ft at 7-8 Wellington Place. This was the biggest ever commercial property letting in Leeds. NHS Digital will also relocate to the new office, with occupation scheduled for 2020.
To underline the flourishing nature of the city’s office markets, rents have now reached £30 per sq ft for the first time ever.
These three record-breaking statistics were revealed in Knight Frank’s Regional Cities Report, published this week.
Eamon Fox, partner and head of Knight Frank’s office agency department in Leeds, commented:
“Whilst the GPU letting has attracted the majority of market attention, occupier activity was strong across all sectors. Significantly, three deals above 40,000 sq ft were completed during the year, a feature of the market that was absent from 2016.
“In a deal that will enable a move from Albion Place, Leeds Building Society took control of the 80,600 sq ft Sovereign House as the year was finishing. The building is the former home of Addleshaw Goddard who moved to Bruntwood’s 3 Sovereign Square in one of the largest deals in the city in 2016.
“Earlier in the year, Burberry took 46,000 sq ft at 6 Queen Street on a 10-year lease. The deal was of major significance to the Leeds market with £30 per sq ft being agreed. Prime rents in the city have now shifted upward on the back of this transaction, “said Mr Fox.
Underpinned by the GPU, the public sector accounted for the highest percentage of take-up in 2017, 39%. Occupiers from a Technology, Media or Telecoms (TMT) background continue to have a significant influence on market activity. The TMT sector accounted for 16% of take-up during the year, with new deals to Sky (25,700 sq ft) and Tech Hub (19,600 sq ft) the largest to complete.
Prime headline rents increased by 9% during 2017 to £30.00 per sq ft. 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.
Meanwhile a lack of available stock at the upper end of the market, rather than low investor appetite, served to limit investment volumes in 2017. Although the overall deal numbers were up when compared to 2016, an example of an office sale above £25m was absent from the year. This meant that investment volumes reached only £127m, 25% below the 10-year average for the city.
Henrie Westlake, head of Knight Frank’s Leeds office and senior investment partner, commented: “The acquisition of 9 Bond Court by a confidential purchaser for £24.5m was the largest office sale in 2017. Bought from Legal and General, the 66,000 sq ft building is multi-let with Redmayne & Bentley LLP, Knight Frank and Stewarts Law, the principal tenants.
“In March, JPMorgan Chase acquired the freehold interest of Toronto Square from M&G Real Estate Ltd for £22.2m. Tenants of the 88,000 sq ft property include CBRE Ltd, Capsticks Solicitors LLP and Towry Services Ltd.
“Other notable deals to complete in 2017 include the sale of five buildings at Capitol Park to Squarestone Growth for £18.2m. The properties were bought from Sterling Capitol, with the sale price reflecting net initial yield of 8.9%. In July, Schroders UK Real Estate Fund, through Regional Office Unit Trust bought the freehold of 1 East Parade and 8 St Pauls Street for £12.7m reflecting a net initial yield of 6.75%.
“In contrast to the previous year, domestic money accounted for the majority of investment in 2017, 47%. Nonetheless, international interest remain strong, with overseas buyers accounting for 40% of investment volumes.
“Prime city core yields remained unchanged at 5.25% in 2017. At this level, prime yields are 50 basis points above the market peak of 4.75% recorded in 2007. Given the strong interest and limited availability of prime opportunities however, should the best buildings come to market, a sharper yield would be expected.
“For secondary assets, refurbishment opportunities remained highly sought in order to re-institutionalise assets and thus make a profit. Yields for good quality, well located secondary stock ranged between 6.50% and 7.50% at year end,” he added.