Optimism on increase as real estate sector sparks into life

Chris Grigg, president of the British Property Federation (BPF) and chief executive of British Land, which co-owns Meadowhall in Sheffield with Norges Bank Investment Management, said with regional schemes finally getting off the ground there was a growing sense of optimism following several months of stabilisation and marginal economic growth.

“A week may not seem a long time in property, but in this market, a few months certainly does,” he said.

“We have seen a real thawing in market conditions of late, and not just in London.

“The UK economy has done better than the pessimists predicted, and there is undoubtedly more bank finance out there now. Meanwhile, domestic and international buyers have started to run the slide rule over more real estate outside as well as inside the capital.”

A number of big Yorkshire projects, such as Leeds Arena and Trinity Leeds shopping centre, have already come to fruition this year while others are in the pipeline.

Work has just started on a new 60,000sq ft office block, which is being developed by Muse Developments to house KPMG’s new Leeds headquarters.

Meanwhile, MEPC has also reignited its Wellington Place development by starting to build a 35,000 sq ft office block following a commitment by law firm Shulmans to take almost half the space. The development of the huge city centre office park was halted in 2008.

Last year, developer Wykeland was brave enough to start speculative office construction at Bridgehead Business Park in Hessle, East Yorkshire, a £100m development that could create 3,000 jobs.

There have also been a number of industrial developments in South Yorkshire, where there is a strong manufacturing base.

But Mr Grigg also acknowledged that economic conditions remained difficult. “UK economic growth remains low and unemployment painfully high,” he said.

“The challenge to our industry is startling: we must provide relevant space for occupiers whose needs are often changing, and do it at a time when capital markets are still patchy. Government faces a similar challenge: to provide world class infrastructure on a tight budget.”

The British Property Federation, which held its annual conference yesterday, said the financial crisis had been characterised by large scale interest in property in the nation’s capital – particularly from overseas investors - while the regions suffered credit drought as lending organisations shied away from property outside London.

But with schemes like the ones in Yorkshire, plus Manchester Airport City, one of the UK’s largest development projects, getting off the ground, there is a growing sense of optimism.

Earlier this year, plans for the Central Square scheme in Leeds city centre – comprising two office buildings on the former Lumiere site – were approved by Leeds City Council.

Guy Gilfillan, head of office agency for Lambert Smith Hampton (LSH) in Yorkshire, said a number of potential buyers had put bids in for the site.

“I would have said a year ago you would not have had any significant bids,” he said. “But the strength of interest demonstrates the market has moved on considerably and confidence is returning.”

He added: “We said 18 months ago that grade A office supply would reach a supply crunch and we are there. There is very little out there now and developers have realised that.”

Meanwhile, the conference heard that inward foreign investment into the UK continues to be dominated by investors from Asia, although European investors are also starting to come forward.

Mark Payne, partner at Cliffard Chance who was speaking at yesterday’s event, said: “We are...seeing new market players from the eurozone, particularly private equity funds and high net worth individuals.

“Sovereign wealth funds from many parts of the world continue to keep us busy and are eager to add London assets to their real estate portfolios.

“The best properties attract a lot of competition and the reputation of the buyer and its advisers really matter.”

Drop in take-up of industrial space

Take-up of large industrial space in Yorkshire dipped slightly by 11 per cent in 2012 but restricted supply should lead to rental growth over the course of 2013 and beyond, according to a new report.

Overall take-up of warehouses over 50,000 sq ft in the region stood at 4.8m sq ft, compared to 5.3m sq ft during 2011, according to Gerald Eve’s latest Prime Logistics report.

The fall was in line with the wider UK market, which saw a drop of nine per cent.

However, the year saw some notable transactions, especially in South Yorkshire. Aldi began the development of a 856,000 sq ft warehouse at Goldthorp Industrial Estate in Barnsley, a site it purchased in 2008, and there was also the 750,000 sq ft letting of Nimbus at Thorne to the Range.

Myles Wilcox-Smith, partner at Gerald Eve, said: “The next few years should see development – albeit driven by design-and-build – return in earnest to cater for the latent demand in the market.”