Pictured is St Paul’s House
Office rents in Leeds could reach a record-breaking £30 per sq ft by the end of year, as the city’s economy continues to prosper, according to leading global property consultancy Knight Frank’s new Regional Cities Review report.
Eamon Fox, head of office agency at Knight Frank in Leeds, said that landlords were taking the opportunity to increase rents via comprehensive refurbishments, while tenants were looking to reduce occupational costs by relocating to more modern and greener accommodation.
“This combination will push up rents in the city centre. £27.50 per sq ft is currently the established norm, but I anticipate rents in new builds such as 6 Queen Street, Wellington Place, 3 Sovereign Square and Central Square will hit £28 per sq ft in the very near future.
“And rents won’t stop there. I see them moving forward to £30 per sq ft as occupiers compete for the best space in these buildings, as well as in Bruntwood’s Platform by Leeds Station. These are exciting times for the Leeds office market,” said Mr Fox.
Looking back over the past 12 months, Mr Fox said that the two largest deals were Sky Bet’s 39,000 sq ft lease at Number Six Wellington Place and RSM’s move into Central Square, where the consultancy firm are taking 25,500 sq ft on a 15-year lease. These deals were two of four over 20,000 sq ft to complete in 2016.
“Interestingly, professional services accounted for 28 per cent of the take-up in 2016. Supported by the Sky Bet deal, the Technology, Media and Telecoms sector (TMT) accounted for 25 per cent as Leeds again proved an attractive location for digital occupiers.
“Grade A availability currently sits at about 441,000 sq. ft, which includes 280,000 sq ft of brand new Grade A accommodation delivered during the second half of last year at 3 Sovereign Square, Central Square, 5 Wellington Place and 6 Queen Street.
“New supply in 2017 will comprise 271,000 sq ft, made up of 120,000 sq ft, 40,000 sq ft, and 120,000 sq. ft at 3 Wellington Place, 6 Park Row and Platform respectively. Platform is letting well already with the positive inward investment of law firm Shoosmiths LLP who have taken a pre-let of 10,000 sq. ft.
“The new office is part of Shoosmiths’ strategy to take a larger share of the UK legal market and its expansion into Leeds is part of its plan to bring new people and clients into the firm, bolstering further a strong legal sector in Leeds,” said Mr Fox.
Meanwhile the city of Leeds continued to prove popular with investors from both home and abroad.
Henrie Westlake, investment partner and head of Knight Frank in Leeds, revealed that transaction volumes last year remained consistent. Yields stayed at the lowest level since 2014, with demand for prime assets remaining strong.
Nonetheless, two deals above £25m did complete in 2016. The largest of these was the acquisition of 3 Sovereign Square by Leeds City Council for £43.75m. The building, bought from Bruntwood Estates, is the new HQ of law firm Addleshaw Goddard. The law firm agreed a 50,000 sq ft lease in 2015.
The other was the sale of Number One Leeds on Whitehall Road for £34.2m. Bought by Credit Suisse, the deal follows the acquisition of the Princes Exchange by the firm in 2012. Tenants at number One Leeds include the Yorkshire Post newspaper and energy firm GDF Suez.
Other noteworthy deals in 2016 included EPIC UK Ltd’s acquisition of St. Paul’s House from Boultbee Brooks Real Estate for £23.7m at a net initial yield (NIY) of six per cent. In addition, the sale of 1 Park Lane to a Private Middle Eastern investor for £19.1m completed at year-end.
Mr Westlake said: “In contrast to many other regional UK cities, domestic investors accounted for the 69 per cent of turnover during the year. This representation is up from 57 per cent in 2015. In terms of deal number, UK buyers were responsible for 10 of the 16 deals completed in 2016. Even so, Leeds also continued to see strong interest from overseas buyers. Foreign investment represented 22 per cent of total investment in 2016.
“The consistent level of demand meant that prime office yields held firm at 5.25 per cent throughout the year. At this level, prime yields are 50 basis points above the market peak of 4.75 per cent recorded in 2007. In 2017, we anticipate that yields for prime products to stay around 5.25 per cent.”