The Yorkshire Counties
Robust Leeds Offices Market Reports JLL’s Richard Thornton Director Office Agency
The central Leeds office market continues to be robust in terms of the level of take-up and forecast to exceed the average annual take-up of offices being 600,000 ft² approx. Some circa 400,000 ft² was take-up at the half year point which was the largest amount of office take-up across the Big 6 regional office markets (Edinburgh, Glasgow, Leeds, Manchester, Birmingham, Bristol). This is down to several factors, but most notably the significant letting of 124,000 ft² to Lloyds Banking Group in Quarter 1 at 11/12 Wellington Place, but also a relatively healthy number of other transactions focussing on good quality Grade A buildings. Leeds is striking among the Big 6 regional markets in that Grade A typically accounts for well in excess of 60% of all market activity and in Quarter 1 this year exceeded 80%. Indeed, Wellington Place continues to dominate the market in terms of Grade A take up, with 11/12 Wellington Place having either been let or under offer shortly after the scheme completion.
With a Grade A vacancy rate of 2.9% it is a race for space of occupiers to commit to either a new build or refurbished Grade A in order to secure space where they want to be located and to the required level of specification. In so doing there is a drive to attract staff retention and encourage higher levels of occupancy post Covid.
The trend for employers to offer amenity rich space with attractive break out areas and open plan flexible working has at the same time gone hand in hand with the developer seeking to deliver best in class buildings with high levels of sustainability (EPC A and BREEAM Excellent). At 11/12 Wellington Place this delivered the very first NABERS 5* building outside of central London.
Without doubt the central business district can accommodate further speculative Grade A office development, but with developers currently
reticent in committing to such schemes given uncertainty over the economy and occupiers generally reducing the amount of space they wish to occupy. The upside is that occupiers are prepared to pay more rent for high quality space. In 2022 prime Grade A rents rose by 9.3% and projected to be more than 10% in 2023. With prime rents now at £38.00 per ft² there is good argument to suggest that the next building in the prime core will achieve in excess of £40.00 per ft² given the imbalance between demand and supply. Leeds is currently the lowest prime grade A rent in the Big 6 regional office markets falling behind the likes of Bristol and Edinburgh with rental levels of £40.00 - £45.00 per ft².
Occupiers flight to quality is not just limited to Leeds, with Palace Capital’s HQ offices scheme in York having let well. The 34,500sqft building which was developed entirely speculatively is already 80% let and capitalised on the latent demand of high-quality offices for the York market having been starved of brand new development for over 20 years. As such the scheme established a new prime rental of £27.50 per ft². It is a similar picture for other towns and where landlords have invested heavily in very high-quality refurbishments have reaped the benefits. For example Commercial Estates Group committed to two Grade A office refurbishment projects at York Business Park and Central House in Harrogate, which have let well with the latter having achieved £24.00 per ft².
Whilst the investment market values have been subdued for the year the signs are encouraging in that funds are now looking to buy buildings, undertake high quality refurbishment, raise the sustainability credentials and in so doing future proof the buildings. This is essential in providing an attractive proposition to the ever-discerning occupier market.
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