Competition pushing up price of top-quality office space

Top rents in the city have remained steady at £24 per sq ft for the past 18 months, having fallen from £27 per sq ft at the height of the property boom.

Knight Frank’s latest Regional Office Market Presentation (ROMP) research, which earlier this year predicted rents would remain at £24 sq ft until the end of 2011, said the expected rise in rents had been caused by the increased take-up of Grade A office space in the city and the consequent decrease in the availability of quality office space.

While top rents are expected to see at best limited growth over the next 12 months, incentive levels are expected to continue to harden – putting upward pressure on net effective rents – as tenants compete against each other for increasingly limited Grade A stock.

Alex Munro, head of commercial agency development in Leeds, said: “The occupational markets still remain tough but, with diminishing levels of Grade A supply, we expect some occupiers to consider taking advantage of the deals on offer now in order not to miss out. This may trigger the pre-let market, but with funding still hard to secure, most developments will need to see around 30 per cent to 50 per cent pre committed to prior to any start on site.”

However, research by Drivers Jonas Deloitte suggested the market still requires significant take-up of space in order for rental prices to climb to pre-recession levels.

Recent office deals include 1,507 sq ft on the first floor of 14 King Street in Leeds to 3volution, a new boutique commercial law firm formed by three ex-partners of solicitors Lee & Priestley for £19.50 per sq ft in a deal advised by Knight Frank.

Meanwhile, two new tenants have taken nearly 46,000 sq ft of space in three modern warehouse units on Lockwood Park Industrial Estate in south Leeds.

Brands Home and Leisure and Enjays Pancakes have taken 35,345 sq ft and 10,470 sq ft respectively. The estate is owned by the Scottish Amicable Life Assurance Society Pension Fund. 

Elsewhere, investors’ aversion to secondary assets and an ongoing shortage of available prime stock stymied activity in the UK regions in the first half of 2011, according to the ROMP.

Prime yields held firm across eight of the 11 markets in the second quarter but softened in Leeds and Sheffield.