A report by South Yorkshire’s most active commercial property agency shows that office take up in Sheffield almost doubled between 2016 and 2017.
The UK Regional Cities Market Review report for 2018 by Knight Frank, shows that a total of 393,700 sq ft was transacted across 2017 against 201,500 sq ft in 2016, 25 per cent above the ten year average for the city with a notable 85 deals completed in the year.
Despite such stellar performance across its office markets, the report also highlights that Sheffield’s prime office stock last year fell to its lowest levels on record.
Peter Whiteley, head of the Sheffield office and partner at Knight Frank, said: “There was a good deal of activity across the offices sector in 2017, a reflection of the year shows take-up marginally short of registering a two-fold increase when compared to 2016. 2016 was a challenging year with the ‘Brexit effect’ impacting on decision making in the market.
“A 27,000 sq ft lease taken at CBRE Global Investors building The Balance on Trippet Lane by Johnston Publishing was the largest occupier transaction of the year and followed the sale of the company headquarters at Telegraph House on York Street to Tosca Commercial Property Fund for £3.6m. The new space has allowed the consolidation of both Sheffield-based staff and functions previously based in Leeds.
“Preceding the Johnston Publishing lease, Electronics firm Arm Ltd secured 20,000 sq ft at CityGate at Moorfoot in a move from Rockingham Court in the Devonshire Quarter to enable expansion.
“These two headline transactions serve to exemplify the growth of Technology, Media and Telecoms (TMT) occupiers in Sheffield in recent years.”
The sector accounted for 31 per cent of take-up in 2017, up from 23 per cent in 2016, the highest representation on record. Other notable TMT deals in 2017 included SDL taking 19,600 sq ft at Derwent House, Jaywing taking 16,000 sq ft at Albert Works and Sumo Digital taking a further 10,000 sq ft out of town at Jessop Riverside.
On the supply side, prime city centre Grade A availability in Sheffield measured just 150,000 sq ft at the close of 2017, the lowest level on record for the city.
Peter added: “Prime buildings with availability are 3 St Pauls Place, Acero and Steel City House, all of which are securing good take-up. The development pipeline however, remains limited, with works due to complete on just 81,000 sq ft of office space split between Steel City House and the NUM Building in 2018. Steel City House has already secured British Business Bank to the top two floors of the development.
“Beyond this, a further 51,000 sq ft is proposed at Vidrio, Digital Campus opposite the train station by Scarborough Property Group, although a firm date for delivery is yet to be announced.
“Also of note is ARBA Group’s Meadowhall Business Park offices, located out of town, opposite the new Ikea store close to J34 M1. The development comprising approximately 70,000 sq ft in five buildings has seen superb take up over the last year. The most recent being Tuffnells in 15,000 sq ft. There is roughly 26,000 sq ft available to let with suites from 3,750 sq ft.”
Total investment volumes rose above £50m for the second consecutive year in Sheffield reaching £54m by the year- end. Despite this representing a 35 per cent decrease from 2016, the 2017 total is 18 per cent higher than the ten-year average for the city.
The acquisition of 2 Cutlers Gate by UK Commercial Property Trust for £20.16m was the largest office sale recorded in 2017. Bought from Ediston Property Investment Company, the 61,000 sq ft building is let to Capita Business Services with 22 years remaining on the lease at the time of sale. The purchase price reflected a net initial yield of five per cent.
In June, Bracknell Forest Council acquired 1 Nunnery Square from DVS Property Ltd for £17.1m, in a deal that reflected a net initial yield of 6.2 per cent. The 72,000 sq ft office is let to DSG Retail Ltd. Lease expiry is in 2029.
Other notable deals to complete in 2017 include the purchase of Riverside House by UKRO for £6.85m reflecting a yield of 7.6 per cent. UKRO also bought 19 Park Row in Leeds following this transaction.
In Q2, MCR Property acquired Westfield House for £3.5m and Tosca Commercial bought Telegraph House for £3.6m. A change of use is expected at Telegraph House.
In contrast to the previous year, domestic money accounted for the majority of investment into Sheffield offices in 2017, 83 per cent. This is inclusive of the Nunnery Square purchase, a deal which represents the first time a non-resident council has purchased an investment asset in Sheffield.
Overseas buyers represented 13 per cent of transactions in the city, down from 82 per cent in 2016.
Prime office yields hardened by 50bps in 2017, finishing the year in the region of 6.00 per cent.
Peter said: “Investors continue to see value in secondary assets for both refurbishment projects supported by the strengthening leasing market, and conversion to residential or student accommodation. The weight of demand has meant that secondary yields have moved to between 7.5 per cent and nine per cent.”