Leeds becoming a “centre of digital excellence” – Knight Frank

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The city of Leeds is fast becoming a centre of digital excellence, according to global property consultancy Knight Frank. 

Knight Frank’s latest research into activity in the office market during the first six months of 2016 reveals that deals were dominated by the Technology, Media & Telecommunications (TMT) sector and Professional Services, which combined, accounted for 71 per cent of the total office take-up. 

The research, published today, highlights the trend which has seen the TMT sector take a significant role in the occupier market. This reaffirms Leeds’ increasing reputation as a centre for digital excellence. 

Eamon Fox, partner and head of office agency at Knight Frank in Leeds, said: “The commercial property headlines across the UK have, understandably, been concerned with post-Brexit fears of a slowdown. There is no doubt that the uncertainty caused by Brexit has affected the office market in Leeds, with the total of 47 deals completed in the first half of this year, which is down on the same period last year. 

“Nevertheless, there were still a number of notable deals which took place in H1. This includes the deal which saw SkyBet take 39,065 sq ft at no. 6 Wellington Place and RSM (Baker Tilly) take 25,539 sq ft at the recently completed Central Square office development. 

“The recent completions of 6 Wellington Place, 6 East Parade, Central Square and 6 Queen Street will serve as a boost to supply, which has been constrained for some time. While a number of these schemes have been subject to pre-lets, there are still some opportunities for occupiers seeking the latest Grade A office space within the city centre. 

“Prime headline office rents have remained at £26.50 per sq ft so far this year. However, rents should rise to £27.00 per sq ft by the end of the year, with the most active quarter in Leeds’ occupier market to come.” 

He added: “Leeds offers a UK leading choice of new offices backed by competitive rents and access to a diverse and skilled workforce. These all make our city very attractive to both local businesses as well as companies looking to relocate from the expensive and overcrowded London and south-east markets.” 

Meanwhile the Leeds investment market remains one of the UK’s most attractive across all sectors, offering good opportunities for investors, and whilst there has been yield compression, particularly for prime assets, this is a trend reflected across UK Regional markets and one which will stabilize. Yields are currently 5.25 per cent.  

The investment market has experienced strong levels of interest so far this year. A total of £102.5m across eight deals were transacted in the first half of 2016, which is up by 10% on the second half of last year. This also marks the highest number of completed deals over a half-year period since the second half of 2014. 

Henrie Westlake, head of investment at Knight Frank in Leeds, commented: “The most notable deal so far this year involved Leeds City Council, which bought 3 Sovereign Square for £43.75m in June. This scheme, which is located adjacent to Leeds station, forms part of a wider redevelopment project which aims to transform the built environment in and around the city centre. 

“Law firm Addleshaw Goddard signed a pre-let in 3 Sovereign Square, taking 51,000 sq ft This scheme is expected to complete in H2 2016. Other noteworthy deals include EPIC UK Ltd, which acquired St. Paul’s House from Boultbee Brooks Real Estate for £23.7m at a net initial yield (NIY) of 6.00 per cent and CBRE Global Investors disposing 20 Merrison Way for £16m to a Spanish investor. 

“These transactions reiterate the appetite to invest in office schemes in Leeds despite the notable uncertainty during the run-up to the EU referendum. However, now considering the UK’s decision to exit the EU, there is the likelihood that investment activity could begin to wane in the short term, as the market digests the potential implications of the electorate’s vote. 

“Nevertheless, with the inflow of redevelopment projects in the pipeline, most notably HS2, we anticipate Leeds to continue to be an attractive long term destination for investors keen on acquiring regional office assets,” added Mr Westlake.

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St Paul’s House

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