Lack of prime buildings pushing investors out of Yorkshire

Yorkshire does not have enough quality buildings to satisfy the appetite of hungry investors, according to the region's property experts.
3 Sovereign Square, which Leeds City Council bought for £44m in 20163 Sovereign Square, which Leeds City Council bought for £44m in 2016
3 Sovereign Square, which Leeds City Council bought for £44m in 2016

Directors at some of the biggest property firms said investors from across the globe are keen to plough their money into cities like Leeds and Sheffield but warned the lack of available prime stock means they are forced to invest elsewhere.

Andrew Summersgill, director of national investment at JLL, said: “There was a build-up of capital in the second half of 2016 following Brexit and investors now want to put their money into good quality regional stock but there is a shortage of supply. Owners aren’t in a rush to sell because there isn’t anything else to buy due to a shortage of development.”

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The last prime office building to sell, according to Mr Summersgill, was 3, Sovereign Square, the home of law firm Addleshaw Goddard, which was bought by Leeds City Council for £44m.

A number of so-called secondary buildings, including No, 1 East Parade, in Leeds have since sold. Mr Summersgill said there was still demand for such buildings but the gap between the price of primary and secondary stock was increasing.

“Prices for prime offices are below pre-Brexit levels, but not by much,” he said. “There is a big focus on quality. There is still some uncertainty out there so institutional money tends to focus on the bigger regional centres, which is less risky.”

According to JLL’s latest Office Market Outlook report, office investment volumes reached £158m in Leeds which, while subdued as a result of available office stock, exceeded the previous year’s total.

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Overseas money accounted for 52 per cent of all transactions in the city with European and Middle Eastern investors with UK operating partners being particularly active.

Office yields were unchanged at the end of 2016, holding firm at 5.5 per cent.

According to CBRE, prime industrial yields continued to be 5.75 per cent.

Robin Bullas, director of the national capital markets team at CBRE in Leeds, said: “Off market activity is still high as purchasers are targeting opportunistic investments where they think the landlord would be a willing vendor and are prepared to pay strong yields in order to secure the product.

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“Many of the overseas investors are looking in Yorkshire but require lot sizes of over £20-£25m which are harder to source in our region.”

Henrie Westlake, investment partner and head of Knight Frank’s Leeds office, added: “Leeds is seeing a larger amount of positive development at present but this is not likely to significantly increase the amount of available investment opportunities and it is expected that supply throughout 2017 will be fairly thin.”

He added: “Hopefully, where we will see activity in 2017 is where asset managers have completed business plans and following new lettings or refurbishments, they will look to sell and move onto their next project.”