CONFIDENCE is returning slowly to Yorkshire's property market although deep cuts in the public sector could impact the region in 2011, according to property experts.
After more than two years of turmoil there are signs of cautious optimism for 2011, although most of the region's property agents forecast another challenging year.
The office sector saw its lowest take-up on record in 2010, according to property consultants King Sturge, but the lettings market is predicted to bounce back in the next 12 months, boosted by professional services firms.
New lettings in Leeds city centre during 2010 are estimated to have totalled only 270,000 sq ft, less than half the long-term average of 550,000 sq ft. Meanwhile, out-of-town lettings fell from a long-term average of 380,000 sq ft also to only 270,000 sq ft.
Richard Thornton, King Sturge head of office agency in Leeds, said: "2010 was the lowest ever point in the cycle. Take-up will improve in 2011 particularly among professional services firms which will seek enhanced quality stock as forthcoming break clauses and lease expiries concentrate their minds – as well as the outstanding deals available which can potentially provide cost-neutral moves covering dilapidations and fit out."
But the public sector cuts, including the abolition of regional development agency Yorkshire Forward, could have an impact, according to Alex Munro, head of commercial agency development at the Leeds office of Knight Frank.
He added: "The key question is whether the private sector can rise to the challenge. I think it can. If the economy continues to improve, then prestigious developments such as McAleer and Rushe's City Square House and MEPC's Wellington Place could finally take off, supported by the renaissance in the city's retail sector, led by Land Securities' 750,000 sq ft Trinity Leeds project."
But Jeff Pearey, head of the Leeds office of Jones Lang LaSalle, believes the effect of the public sector cuts will be minimal in the region. "One of the beneficial elements of the Yorkshire market is that we are not as reliant on the public sector as we were two or three years ago because of a gradual change in the market place," he said. "There will be some form of impact but the public sector is very carefully managing its estate. This will present an opportunity to refurbish buildings where leases have expired and put them back on the market as better quality stock."
Mr Pearey added: "Going forward, we're particularly seeing firms in the technology and recruitment sectors looking for space. The absence of larger transactions this year has surprised me but the start of the Trinity Leeds retail scheme has helped to build confidence into the city so I expect that to have a positive effect in 2011."
Industrial investment activity thrived in the second half of 2010, with major leasing deals for Debenhams at Sherburn-in-Elmet and on-line fashion retailer ASOS at Barnsley, emphasising Yorkshire's key role in the UK's logistics market but there are concerns that the demise of speculative building could lead to a shortage of available large industrial buildings
Funding for speculative building is not expected to return to the market in 2011. Jonathan Moore, associate specialising in property at the York office of law firm Dickinson Dees, said: "Credit will remain hard to come by, meaning that the speculative developments which drove the market in the boom will just not happen.
"However, interest rates are likely to remain low all year, which is essential to prevent the consequences of the deep Government spending cuts from being too severe and stalling the economy. There's no doubt that these public sector cuts will have an adverse effect on construction and development and will impact on the private sector. The rise of VAT is another factor in this complex equation."
The last year has been a busy year for investors as the significant weight of institutional cash, which hit the market in the autumn of 2009, continued to be its driving force. Buildings which have been taken over by banks after breaches of loan agreements are expected to dominate the market in 2011 as lenders look to reduce their exposure to commercial property, according to James Lawlor, senior surveyor at DTZ in Leeds.
Dacre, Son & Hartley experienced a noticeable improvement in 2010 in comparison to the previous 12 months and feel optimistic about 2011. The company began recruiting again in 2010 and it added to its 20 strong office network, which covers North and West Yorkshire, by expanding into Boroughbridge.
Managing Director Jonathan Isles, said: "In 2011 public sector cuts will continue to hit confidence and the banks' reluctance to lend remains a key challenge so we are in for another tough year although the fragile recovery that we have seen so far looks set to continue."
Trinity Leeds sets the pace
YORKSHIRE'S retail sector received a huge boost in 2010 when work restarted on the Trinity Leeds retail scheme.
Last November, developer Land Securities reported the site, which when finally completed will create more than 3,000 jobs, was 50 per cent let to brands including Next, Hollister and Cult as well as restaurant Carluccio's.
Tom Cullen, director of retail agency at Colliers International in Leeds, said: "Trinity Leeds is really positive news in the current climate and a sign that the market is moving forward.
"Last year was a recovery year but things will hopefully start progressing in 2011 with Trinity Leeds leading the way. I am cautiously optimistic about the next year for the retail sector against a backdrop of the VAT rise and the uncertainty over how the economy will pan out, which could have a bearing on consumer confidence."