Office buildings set to have a shorter lifespan
The findings are part of a 12-month research campaign to highlight key factors in Europe’s office market, including Yorkshire, which was launched in Leeds yesterday.
UK Economy and Offices 2020, which was presented by Jones Lang LaSalle at its annual breakfast seminar, detailed the main opportunities and challenges up to 2020 including sustainability, location, asset management, building obsolescence, technology, working practices, fit-out and finance.
It also warned how the economy will affect the region’s office market and issues facing investors.
Bill Page, head of EMEA office research at Jones Lang LaSalle, said changing workplace technology, a shift in the balance of power from landlords to tenants and increasing risk of building obsolescence will have a marked effect on the Leeds office market.
He added that the trend towards shorter leases would boost occupancy.
“While the trend toward shorter leases will not necessarily be welcome by Leeds landlords, it will have a positive knock-on effect on the number of deals done,” he said. “If you apply shorter-length leases to 2005-2007 take-up, this bodes well for an increase in medium-term deal flow as leases come to an end.”
He added that the lack of grade A office space in the city combined with severe limitations on speculative schemes, suggested that larger occupiers will struggle to find suitable space. “Those able to move will pre-let off-plan, controlling far more of the development pipeline than before,” he said.
Mr Page added that new workplace technology, such as cloud computing and mobile and collaborative technology, would boost demand for smaller and more flexible office space.
He said: “Office obsolescence will be a major headache and stock in Leeds isn’t getting younger with an average replacement rate of 1.5 per cent per year.
“Office buildings will be increasingly scrutinised and legislation more strict – older premises will become harder to let or sell. In addition, an increasing embracing of workplace technology and changing working practice will make more stock unfit for purpose leading to further polarisation in the market between the best product – and the rest.
“However, problems will be matched by opportunities and the expertise and experience of Leeds’s property industry will become increasingly important to the city’s success.”
Stephanie McMahon, director of UK Research at Jones Lang LaSalle, outlined how the economy will affect the Yorkshire property market. She said: “Leeds saw a sharper downturn during the recession, so it is reasonable to expect a stronger bounce back during 2012-2013 but it will not be dramatic.
“Financial and business services will be the strongest employment sectors in the medium term and it will be important for Leeds and West Yorkshire to capitalise on existing occupiers and seek to capture employment growth and expansion.
“Offices will show the fastest rental recovery. Leeds will occupy the middle ground between the highest in Manchester and the lowest in Birmingham. Rental growth will be supply, rather than demand, driven.”
Mathew Atkinson, director of Jones Lang LaSalle’s national investment team, added: “As concerns over the Eurozone have grown during the summer and uncertainty continues, property investors are becoming increasingly cautious about the market. The prime sector, viewed as a safe haven and long leases with some form of gearing to drive performance, are requirements for most investors.
“Many, without pressure to sell or buy, are now in ‘wait-and- see’ mode.
“There are buyers for secondary assets, provided that the pricing reflects the risk; the property has strong underlying fundamentals and investors are confident that, in a normal occupier market, they can drive performance.”
Makeover for business park
An East Yorkshire business park is to get a £400,000 makeover to bring its offices and warehouse space up-to-date.
Tokenspire Business Park in Beverley comprises 51 units and is let to a number of traders including furniture, fashion, removal and light industrial businesses.
LaSalle Investment Management appointed GVA’s Building Consultancy team to project manage the 16-week project after GVA’s investment team acquired the site last year.
Chris Mitchell, associate director at LaSalle, said: “This project represents a significant investment to ensure that Tokenspire Business Park is a premier, regional base for business and enterprise.”