Can Leeds reach the magical 1m sq ft office take-up mark?

Will the Leeds city centre office market punch through the 1m sq ft take-up barrier in 2017? That is the question agents in the city are debating at the moment.

After a relatively lacklustre 2016, when the city racked up 430,014 sq ft of deals according to figures from Colliers International - 27% lower than the 2015 total of 680,105 sq ft and 13% below the 10-year average of 494,581 sq ft - 2017 is shaping up to be a record-breaking year for Leeds, with a series of high-profile lettings expected to land in the coming weeks.

So what are the odds of the city enjoying a record year? And what are the key deals that need to come off if the city stands any chance of reaching the magic million mark?

To date, the best year the Leeds city centre office market has recorded in terms of take-up is 2013, when 794,043 sq ft of space was transacted, based on figures collated by the Leeds Office Agents’ Forum.

The year was characterised by a number of very significant deals, according to Richard Dunn, partner at Sanderson Weatherall, including 76,000 sq ft taken by Yorkshire Building Society, 73,000 sq ft by Dart Group, 90,000 sq ft by KPMG (in two separate deals) and 50,000 sq ft by Leeds City Council.

So, statistically speaking at least, the 2016 take-up figure of 430,000 sq ft was sub-par.

“Last year was poor for central Leeds take-up, but there were not many occupier lease events in 2016 - there were more between 2013 and 2015 - so this was going to be difficult even without the various political events,” explains Roddy Morrison, director in the national offices team at Colliers.

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Most of the drop-off occurred in the latter half of the year as the city struggled to shake off the hangover from the EU referendum decision, which saw a number of deals either stall or fall through completely.

“Activity was more subdued in the final three months as the impact of Brexit made some occupiers more cautious,” says Duncan Senior, partner at WSB Property Consultants, who is currently marketing Allied London’s new workspace provision at Leeds Dock. “A number of larger deals anticipated to complete in Q4 slipped into 2017 and will immediately boost this year’s figures.”

That is not to say that 2016 was a complete washout. Some important new grade-A buildings were completed last year, including M&G/Marrico’s 200,000 sq ft Central Square, Marshall CDP/Rockspring’s 6 Queen Street and Kier/Bruntwood’s 80,000 sq ft 3 Sovereign Square. All the schemes successfully snared blue-chip occupiers and this is a trend that has continued into this year, with BDO relocating to Central Square in a 12,750 sq ft deal and expressing a strong interest in much of the remaining space. It is also rumoured that a FTSE 250 company is close to taking a significant chunk of 6 Queen Street.

Optimistic outlook

As a result, there is renewed optimism in the market at the moment. “There are currently around 500,000 sq ft of live office requirements for grade-A space,” says Senior.

“We anticipate that this, coupled with public sector requirements from HMRC and the Government Property Unit [GPU], as well as a flurry of upcoming lease events, will result in strong take-up in 2017. This is also reflected in the level of demand we are experiencing for workspace at Leeds Dock.”

It is a view shared by Matthew Tootell, office director at GVA in Yorkshire, who says there is “a healthy level of demand from occupiers in the market, which could see some substantial transactions taking place in 2017, vastly reducing the level of grade-A office supply, in addition to the awaited decision of where the substantial GPU requirement may land in the city”.

For many people, the GPU requirement, which is being handled by Jeff Pearey in the Leeds office of JLL, is the one that could make or break the city’s hopes of hitting the million mark. Property Week understands that three potential sites have been shortlisted - Wellington Place, Whitehall Riverside and Latitude. The deal, which ranges depending on who you speak to from 350,000 sq ft to 500,000 sq ft, could drop at any time.

It is not just public sector bodies that are on the lookout for space. “The recent growth of interest from the TMT sector is a welcome addition to our already strong professional and financial services sectors,” says Paul Fairhurst, a director in Savills’ office agency team. “Indeed, many of the TMT companies based here, including Sky, are in expansion mode and are very much thriving.”

Migrating north

Other key drivers behind Leeds city centre take-up in the coming months will be companies looking to ‘northshore’, and those relocating from Whitehall and the South East, believes Tootell.

“As more companies migrate to locations including the north of England, they are going to be seeking high-quality, innovative city centre offices and their employees will be looking for an identical product for their homes in the city centre or immediate surrounding areas,” he says.

Among the key attractions of Leeds to occupiers currently not represented in the city are the relatively affordable rents, which hit a new headline level last year.

“Leeds is good value compared with the South East, Manchester and Birmingham and the market remains strong with a very healthy supply of grade-A accommodation,” says Jonathan Shires, senior director of office agency at CBRE’s Leeds office.

“It was encouraging to see headline rents increasing to £27.50/sq ft at Sovereign Square, but occupiers can also be heartened that average rents are still sub-£17/sq ft with plenty of good value space available. Leeds is definitely open for business to UK occupiers with a supply to suit all sizes and budgets.”

So will it be a record year? Adam Cockroft, partner at Cushman & Wakefield, thinks so. “Wellington Place has been very successful recently, Central Square is attracting a lot of interest and if the GPU deal lands then we could be looking at the biggest-ever year on record,” he says. “We could easily see 800,000 sq ft for the city centre.”

Bullish market

Richard Thornton, a director at JLL, is also expecting big things for the city centre office market in 2017. “You’ve got around 150,000 sq ft of take-up in three or four deals that will happen this year and then you’ve got the general churn on top, so we will achieve the long-term average of around 500,000 sq ft. If you add the GPU deal on top - if it happens - we could be in for a stellar year,” he says.

Dunn is also bullish. “Approaching the end of Q1 in 2017, there are a good number of sizeable live requirements and the signs are that occupier confidence has returned after the uncertainty caused by the decision to Brexit last year,” he says.

There are also a number of lease events due to be triggered in the second half of 2017 and more still in 2018 and 2019, particularly on space occupied by larger corporates.

The short-term prognosis for the Leeds city centre office market is pretty strong, then.

“We are confident that occupiers will be looking at committing to pre-commitments and/or taking existing space over the next year and into 2018,” says Morrison. “If the GPU deal happens at the size suggested then almost 400,000 sq ft of space will be committed to and even if we have a year that’s on par with the past five years then we should be pushing for 1m sq ft-plus of city centre transactions.”

Watch this space.

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