Southern drift promises boost for the North

THE financial services and professional industries will be the driving force behind Leeds's office market over the next few years as the Government's austerity measures come to fruition, according to property firm Savills.

Mat Oakley, head of commercial research, said the number of national companies looking to reduce their overheads in the coming months is expected to soak up some of the surplus office space in the city, which has some of the lowest rents compared with other big regional centres.

The spending cuts recently outlined by the Government will create problems for cities which heavily rely on the public sector for employment and business, but Mr Oakley said the fact that the public sector occupies only about 25 per cent of office space in Leeds means that there are opportunities for growth in the city.

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"The question we have got to ask is how strong is the private sector?" he said.

"Our view is that the least damaged locations will see significant private sector growth and I see Leeds as a case in point. It's not largely dependent on the public sector."

Clare Burke, associate director of commercial research department, added: "This year has been bad for take-up generally but going forward into 2011, we will see an increase in the private sector moving in from the South and going into lower-rent alternatives in the North."

The key to identifying the strongest and weakest regions going forward, according to Mr Oakley, will be how successfully the new local enterprise partnerships (LEPs) and elected mayors promote regional growth.

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"LEPs and the new city mayors have to grasp opportunities with both hands to connect with and retain private sector businesses and follow the best examples already in the UK and abroad," he said.

Headline rents in Leeds have fallen in recent months from a high of 27 per sq ft to 25 or 26m, which creates an opportunity to attract penny-pinching tenants.

"Leeds has one of the lowest rents in the regions, compared to places like Manchester, Birmingham and Bristol, which is attractive to companies and organisations wanting to cut their costs," said Mr Oakley.

Miss Burke added: "There is a lot of space left in Leeds. The development pipeline is very muted but rents will start to rise so it's a good opportunity for businesses and the city."

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However, some buildings, such as Broad Gate in Leeds, which boasts large floor plates, may have to re-think their strategy in order to attract tenants.

"They may have to halve the floor plates and think about how they are going to fill the building because there aren't large requirements out there," said Miss

Burke. "Eighty per cent of office take-up in 2010 has been less than 5,000 sq ft."

She added: "Leeds has got a strong position because it has a strong financial centre. Private sector back office space is going to come back through."

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In addition, developers and investors will be able to seize opportunities to talk to local authorities about property solutions, including sale and leaseback deals to free up cash.

"The private sector should be talking more about how the two can work together. We are not going to see a lot of local authorities taking fancy new offices. They are going to look at clever property deals," said Mr Oakley.

In contrast, the industrial market in South Yorkshire has remained buoyant with companies such as online fashion retailer ASOS moving into huge distribution centres in cut-price deals.

"It's negative for landlords but positive for tenants," said Miss Burke.

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Mr Oakley added: "We are only at the very beginning of the economic recovery. Tenant demand levels are increasing in London and this normally spills out to the regions nine-to-10 months later.

"It is going to be tough and there are a lot of questions, particularly on the city and regional governance, still to be answered. That will be the deciding factor on where the strong and weak regions are. However, we are moving in the right direction"

Mr Oakley was speaking ahead of Property View, organised by law firm Pinsent Masons and Savills, which takes place tomorrow and will provide an outlook for the region's commercial property sector. Now in its ninth year, it is expected to attract 120 people at Pinsent Mason's offices in Park Row, Leeds.