Take-up of city’s vacant offices on increase

Studies by property agents Savills and Jones Lang LaSalle suggest that with no planned development completions in the immediate future, options for office occupier relocations will gradually fall, soaking up some of the spare space that is currently on the market.

According to the Leeds Office Survey (Summer 2011), which is being presented at Savills’ Yorkshire Property Seminar in Leeds this morning, supply has started to decrease, with vacant office space now standing at 1.8m sq ft.

Although take-up remains low, with the figure in Leeds city centre falling by more than half in the first three months of 2011, the vacancy rate has reduced to 9.5 per cent, down from 14.1 per cent at the end of 2009.

Paul Fairhurst, office director at Savills, said: “There is a lot of space around but stock levels are going down and inquiry levels are going up. I think in the second half of this year we will see two or three significant deals coming through.”

City House, the 12-storey office block next to Leeds train station, which was bought by Bruntwood last year, is expected to be the next large development to start in Leeds. Savills is currently seeking tenants to pre-let all or part of the building so that refurbishment work can begin in 2012.

The impact of the public sector spending cuts is likely to impact on demand, according to Savills, but there are public sector requirements totalling 200,000 sq ft in Leeds at the moment. Even if these requirements tail off due to the predicted cuts, the strength of the private sector should help to mitigate any adverse impacts, according to the report.

Clare Bailey, associate director in the research department at Savills, said: “Leeds compared to Manchester and Birmingham is holding up when it comes to public sector requirements.”

In the private sector, a number of new office space requirements are coming to the market as well as older requirements being reactivated. Companies such as Lupton Fawcett, Yorkshire Housing Association and the Medical Protection Society, are currently looking at their office space options. Nearly 500,000 sq ft of office space requirements in Leeds are in the private sector.

The report said: “With this rise in requirements experienced during 2011, we expect the end year figures will see a marked increase on 2010. With half-year figures reaching circa 150,000 sq ft, we predict end year figures will reach circa. 350,000 sq ft.”

However, Savills warned that Leeds is in a “bubble” when it comes to the Yorkshire picture as a whole. Ms Bailey said: “If you look at other town centres around Yorkshire, they won’t fare quite as well because smaller places, such as Bradford and Wakefield, rely heavily on the public sector and don’t have the private sector to hold them up.

“It is a wait and see mentality at the moment but it is more of a worry and these places will take longer to recover.”

She added: “With regional office development pipelines at historic low levels, and little likelihood of a pick-up in completions in the next two or three years, it will not take much of a rise in tenant demand to drive this recovery in rents.

“However, cities and towns which are highly vulnerable to public sector cuts are likely to deliver little or no rental growth over the next few years.”

Meanwhile, the latest On Point EMEA Corporate Occupier Conditions Report issued by the Leeds office of Jones Lang LaSalle, said more than a million sq ft of new office requirements was expected to come on stream from 2011 to 2016, which would re-kindle pre-let development.

However, the possibility that some public sector space may become available due to cutbacks may change this.

Richard Thornton, Jones Lang LaSalle office agency director, said: “While a degree of confidence is slowly returning among corporate occupiers, the unexpected contraction in GDP in the final quarter of 2010 and concerns that the economy may be flat-lining means that occupiers remain cautious.

“As result – and largely as anticipated for some time – occupier activity remains driven by lease expiries or break clauses and general market churn.”

Retailers look to affluent towns

Affluent North Yorkshire towns and cities are expected to be the winners when it comes to attracting retailers to the region, property consultancy Savills will say today.

Presenting the Yorkshire Property Seminar in Leeds, Savills will say that Harrogate, York, Ripon and Beverley are the favourite locations for retailers in Yorkshire, in addition to Leeds.

Clare Bailey, associate director in the research department at Savills, said: “There is caution in the market at the moment with a restrai ned development pipeline but retailers have a hunger for medium-to-large units in affluent towns.”

Meanwhile, in the industrial market, Savills says stock is limited in West Yorkshire but there is still an oversupply of secondary buildings in South Yorkshire.