Cautious optimism as economy starts to show some measure of growth

As commercial property developments in other parts of Britain struggle to get going, Leeds is at the vanguard with three major projects under way.

Work has begun on the 55m Leeds Arena, Land Securities has recommenced its 350m Trinity Leeds shopping centre, while Hammerson has revised its plans for the 650m Eastgate Quarters city centre regeneration project.

But do these schemes show that a wider economic recovery is gathering pace or do they represent an anomaly as fears linger over a double-dip recession?

This was one of the questions argued over at a commercial property debate in Leeds last week featuring a panel of leading players from the sector and chaired by the Yorkshire Post.

Paul Ayre, managing partner at Gordons law firm, said: "You wouldn't get back on track with projects like that without some confidence in their ultimate success."

He added: "They represent a turning in confidence because they are of such a scale and involve such a commitment. Whether you could use those as a marker for the sector generally, I'm not sure."

Chris Creighton, director at planning consultants Peacock and Smith, said Leeds was long overdue major retail investment.

He added: "If you go to cities like Manchester, Newcastle and Birmingham, you see some pretty impressive retail developments. Why hasn't Leeds had one?"

Mr Creighton also said that Land Securities' decision to go back on site might have put some competitive pressure on Hammerson "to be seen to be doing something".

Matthew Edwards, a partner at chartered surveyors Ryden, said the investment was positive for Leeds, but was "slightly sceptical" about whether that confidence translated nationally.

While the retail market is being flooded with investment, the office sector in Leeds tells a different story.

Demand has traditionally been driven by professional services firms, said Mr Ayre. He added: "That's a very mature market. I can't see anyone new landing in the city in a significant way. It's in a worse position than retail."

Forthcoming austerity measures are likely to have a negative impact on office demand, the panel agreed.

Mr Creighton said: "The public sector is very important to Leeds. About 27 per cent of jobs are in the public sector. We are below the national average, but have some big hitters like the NHS executive.

"As the Government cuts come in and those departments start to contract, I worry that will lead to even more empty office space."

But he said last week's report by consultants Cushman & Wakefield, which ranked Leeds as having the best value office space in Europe, could attract new investors to the city.

He also said that the city could benefit if the Government wanted to move departments out of London to save money.

Mr Edwards said new figures on office take-up in Leeds showed continued stability in the third quarter. But the predicted annual take-up of 500,000 sq ft this year would be nearly half the 2007 figure of 900,000 sq ft, he said.

He said Ryden was busy in the smaller end of the market, for space up to 5,000 sq ft.

Mr Edwards added: "There are requirements out there because there is value. You can get better quality space than you could have done a year ago.

"The choice and quality that Leeds has is very good. I don't think there are any new developments in the pipeline so we probably have a long period of slowly going through those vacant lots.

"Long term, there's health there. Short term, there's a bit of over-supply."

Availability of finance remains the main barrier to doing deals at the moment, said Mr Ayre, although there are more banks in the market now than a year ago.

Mr Creighton said developers are looking at sites again, but so far planning applications are not forthcoming due to a lack of confidence.

This lack of confidence is hampering occupational deals, according to Mr Edwards, who said company owners lack visibility on how their business will be performing in the next 18 months.

On the investment side, Mr Edwards said: "I'm noticing an element of caution creeping back in. The funds largely are concentrating on London at the moment where they see better prospects for rental growth."

The panel was asked where economic growth would come from.

Mr Ayre said he was seeing a big increase in activity in corporate mergers and acquisitions and his firm is involved in a pipeline of deals.

He said: "That's a sign of some confidence. There is a sense of funding availability. Property is better than it was – there's just not much happening. It's dormant, but it's not full of fear as it felt 18 months ago."

Mr Edwards said there is strong demand for small sheds, which could represent demand from many sectors, not just manufacturing. The demand is leading to developers considering speculative builds in this segment, he added.

The Government could help the commercial property sector by improving an inflexible planning system that "doesn't move with the market" and by ditching or reducing controversial taxes on empty buildings.

Looking to the future, Mr Edwards said a degree of stability had been restored to the market. He added: "We all know it's an uncertain picture going forward, but that period of freefall is at an end.

"Going forward, the underlying strength of Leeds's economy has been shown to be quite resilient. I do foresee tough times, but I see a steady climb out of that. The fundamentals are strong enough."

Mr Creighton said: "Leeds is probably better placed than other northern cities to start picking up from the recession. We are on the way up."

Mr Ayre said the Bank of England view that the UK economy was on course for a slow and steady recovery was preferable to the unsustainable behaviour in the years leading up to the credit crunch.

Gordons hosted the debate, which took place at the City Inn hotel.

'A year of economic growth'

A leading City economist delivered his analysis of thinking on the outlook for the UK economy.

Speaking at the Gordons commercial property seminar, Barry Naisbitt, chief economist at Santander UK plc, said: "We have been through recession. The economy is recovering

and we face some headwinds and there's lots of uncertainties for the economy going forward."

He added: "I expect we will see growth in the fourth quarter of this year, so we will have had a year of economic growth. Perhaps to many people it really does not feel like that."

The last time the UK experienced four quarters of consecutive growth of more than one per cent was in 1999, something that should be given more prominence, he said.

But consumer spending and fixed investment have both fallen off this year after bouncing back. And unemployment has not fallen substantially, adding to the "less than enthusiastic" feeling about the recovery, said Mr Naisbitt.

He was encouraged by export orders, which have been quite strong, but said concerns remain about the global economy, particularly in Europe and the United

States.

Meanwhile, the rise in VAT and public sector spending cuts are looming on the domestic front.