Office shortage could send rents sky high

Leeds and Sheffield are leaving their southern rivals in the shade, according to a study of the office market along the M1. But Deputy Business Editor Greg Wright says a lack of supply could cause rents to rocket.

THE legal sector's success in Leeds has spurred growth at a time when other cities have been in the doldrums.

Sheffield's office market has also witnessed frenzied activity, as developers fight for limited space, according to Lambert Smith Hampton's 2005 survey of the sector along the M1.

By contrast, many towns at the southern end of the M1 suffered a dip in fortunes as the economy cooled.

Robin Beagley, from LSH, said Leeds is poised for a bumper year, with professional services and the financial sector enjoying growth. There's no sign of the market easing.

He said: "Previously, the lack of grade A office stock has been the major stumbling block. However, the city centre market continues to expand south and west of the station, providing a larger office core.

"Already we have seen the likes of HBG's 98,030 sq ft building on Sweet Street completed this year, as well as 2 City Walk. Despite this expansion, we are still unlikely to see an over-supply as around half of the city's construction pipeline is subject to pre-lets."

Two colossal developments – Bridgewater Place and City Point – are due to arrive on the market during 2006.

Mr Beagley added: "Many of the out-of-town office parks are also seeing a lot of activity. Akeler is expanding Leeds Valley Park with two speculative units totalling 140,000 sq ft. Peel Developments has just announced it will speculatively build a 32,000 sq ft office at Calder Park, following on from recent successful pre-letting activity on the park .

"Despite an influx of new space, rental values have increased in areas along the length of the M1 corridor, with Sheffield and Leeds both experiencing a rise in value; Sheffield by as much as 20 per cent from 2004 to 2005."

Guy Gilfillan, from LSH's Sheffield office, said the biggest risk to South Yorkshire's prosperity was lack of supply.

He added: "Occupiers for prime stock are facing stiff competition and, as a result, prime rents have risen sharply. Headline rents have increased to 18 per sq ft. However, for Sheffield to achieve the quality and the style of buildings the city needs, against a background of rising building costs, we need to see prime rents rising to 20 per sq ft.

"This should not be too hard to achieve. Currently rents and other property costs are usually less than 10 per cent of a company's operating costs."

Both Leeds and Sheffield are expected to see further rent rises over the next four years. The report predicts Sheffield's growth may be as high as 10 per cent, while the figure in Leeds is expected to be around four per cent.

At the top end of the Leeds market, 24 to 25 per sq ft is the norm, with the second-hand market seeing rents as high as 21.50. Out-of-town rents have also experienced growth from 16.50 to 18.50 sq ft.

Mr Gilfilan added: "The scene looks positive for Leeds and the region as a whole. Sheffield's office rental growths for the next three years are predicted to be the highest along the entire M1 corridor."

Meanwhile, Lambert Smith Hampton has won a hat trick of business to let city centre office schemes in Leeds.

They include One Park Lane and the new waterfront offices at Clarence Dock and Granary Wharf.

The first floor of One Park Lane is being let either in its 10,333 sq ft entirety or in suites from 4,450 sq ft.

Designed by Leeds architects, Carey Jones, the building includes a selection of meeting rooms, private offices, a reception area and car parking facilities.

The Leeds office of Lambert Smith Hampton has also secured the contract to let new waterfront offices at Magellan House, Clarence Dock, on behalf of British Waterways.

Suites on both its 1,489 sq ft ground floor and 2,974 sq ft upper level are available.

Robin Beagley said: "With bars, cafs, casino, museum and small retail outlets in the vicinity, I think Clarence Dock will be sought after by residents and office occupiers alike."