The rental gap between prime offices in Leeds and London is the widest it has ever been according to the latest Spotlight: Leeds Offices report from international real estate advisor Savills. The firm states that Grade A rents in Leeds city centre currently stand at £27 per sq ft (£291 per sq m), compared to £95 sq ft (£1,023 sq m) in the City of London, which will be a key factor in attracting ‘north-shoring’ firms seeking lower staff and property costs outside the capital.
Clare Bailey, associate director in the commercial research team at Savills, comments: “With London rents continuing to increase at speed, Leeds is an extremely attractive alternative. Over the next five years, almost 10,000 new office jobs will be created in the city, partly as a result of major occupiers relocating back office functions from London to the North. Although we expect prime rents in Leeds to rise to £30 per sq ft (323 per sq m) in 2019, this will still offer a large discount in comparison to London.”
Savills highlights robust city centre take-up of 121,178 sq ft (11,257 sq m) in Leeds for Q1 2016, which is 51% up on the 80,335 sq ft (7,463 sq m) seen in the same period last year. This was boosted by a number of large deals including 39,605 sq ft (3,679 sq m) let to Hestview Ltd (Sky Bet) at 6 Wellington Place, 25,000 sq ft (2,323 sq m) let to RSM at Central Square and 13,800 sq ft (1,282 sq m) let to Dentsu Aegis at the newly refurbished 6 East Parade. Strong take-up has been a catalyst for speculative development and Savills says 689,000 sq ft (64,008 sq m) of office space is now under construction in Leeds, including 556,387 sq ft (51,688 sq m) due to be delivered this year of which 47% is already pre-let.
Paul Fairhurst, head of Savills Leeds, comments: “While low availability of prime office space has been an on-going theme in the city centre, the completion of 5 and 6 Wellington Place, Central Square, 3 Sovereign Square and 6 Queens Street in Q2 and Q3 this year will deliver a step change in the quality and variety that Leeds can provide. There are currently more than 500,000 sq ft of named occupier enquiries in excess of 20,000 sq ft, much of which is from the professional and financial services sector, demonstrating the city’s attractiveness.”
The office investment market in Leeds is also thriving and last year’s £323 million total was the highest recorded since 2006. Savills says that although the forthcoming EU referendum has largely seen UK-based investors pause for breath, many overseas investors remain active. In fact 32% of the £49 million worth of office transactions in Q1 2016 can be attributed to overseas investors compared to just 19% of transactions in 2015. Key foreign investment deals in the first quarter included the £16 million acquisition of the Yorkshire Bank headquarters by a Spanish family office.
Simon Lister, investment director at Savills, comments: “Leeds is on the cusp of some major investment deals, with around £113 million worth of offices currently in solicitors hands. We understand that around 90% of this is under offer to global investors, which is an important reflection of the UK market as a whole. If available, we believe that prime 15-year office stock in Leeds would achieve a net initial yield of circa 5.25%, providing a real buying opportunity while the market is in a state of flux surrounding Brexit.”
Click here to view the Leeds office market report.
