Hopeful signs in city centre, but activity remains below average

Figures compiled by Sanderson Weatherall show that take-up for the year was 389,344 sq ft, compared to the 350,000 sq ft predicted, boosted by Yorkshire Water's decision to move to Clarence Dock in the largest deal of the year.

But the overall take-up figure was well below Leeds' 10-year average of 544,000 sq ft and also below the 428,311 sq ft recorded for 2008.

Richard Dunn, partner in office agency and development at Sanderson Weatherall in Leeds, said: "Although 390,000 sq ft is still a third down on the long- term average for the city, we are in a better position than we envisaged at the end of quarter three.

"Another positive note was the deal for 7,050 sq ft at Toronto Square which set a new highest prime rent for Leeds of 27 per sq ft with the letting to Zolfo Cooper."

Yorkshire Water's decision to move into 57,000 sq ft at Clarence Dock, was the largest deal of the year and one of only two of more than 30,000 sq ft.

The only other sizeable deal came from Trillium taking just over 37,120 sq ft in total at 1 Leeds City Office Park, but this was done over two separate transactions.

The figures show that there were 82 deals last year compared to 93 in 2008 and 123 in 2007. Small transactions continue to dominate as small and medium-sized businesses try to use lease breaks to get a better deal on their premises.

About three-quarters of all deals were for 5,000 sq ft or less and the most active sector in terms of number of deals was for requirements of less than 2,000 sq ft, which accounted for 41 per cent of transactions.

The city centre market fared better than out-of-town where take-up was 245,519 sq ft,

with resulting downward pressure on rents.

Sanderson Weatherall predicts that 2010 will be another tough year, especially for refurbished accommodation or fringe locations where generous incentive packages will continue to play a major part in attracting tenants.

Mr Dunn said: "The majority of large requirements last year were from the public sector and much is resting on the NHS and Leeds Council requirements if the 2009 figures are to be improved upon. However,

with the forthcoming election, there must be concerns that future public sector activity will diminish."

The council is considering relocating from its current premises into new headquarters totalling 100,000 sq ft. A decision is expected next month.

Mr Dunn added: "There are not many options out there for the council, which needs to balance achieving best value with somewhere that is suitable for its workforce. It will not be an easy decision to make but could be an enormous boost for the market if it goes ahead and could help take the 2010 figures up to around the 500,000 sq ft mark."

Mr Dunn expects the lack of new-build supply to start to affect the city centre market towards the end of the year. Although there is over 750,000 sq ft of grade A office space overall, there is relatively little availability in prime locations under 250,000 sq ft.

He said: "With only one building due to come onto the market this year – a 40,000 sq ft refurbishment at 10 South Parade – and no new development starts on the horizon, nor likely to be without a significant pre-let, landlords of the best space will be able to hold headline rents and resist improving incentives.

"We hope to see improving prospects for prime kit and a return to net effective rental growth towards the year end. Ideally, a brave developer with a prime plot might just see an opportunity to get in ahead of the game in the supply chain in late 2010."