Office market sentiment improving in Leeds and Newcastle – DTZ
Take-up of office space in Leeds during the first quarter was the highest for more than four years, says DTZ. In its latest research into regional office markets, DTZ says Leeds city-centre take up was 155,000 sq ft during Q1, and that this followed three strong quarters, indicating improving sentiment in the market.
“Tenants are continuing to take the opportunity to move into better quality space at discounted costs,” the firm says. Transactions were mainly driven by lease events and expansions, with activity in the insurance sector particularly prominent, it adds. Prime headline rents remain around £25 per sq ft but incentives hardened during Q1 as the supply of Grade A stock shrank, to 12-15 months on a five-year lease from around 15-18 months previously.
DTZ says there continues to be plenty of occupier demand for available Leeds offices, which is translating into requirements in the market. These include Capgemini, which has shortlisted three options for a 14,000 sq ft requirement; Leeds Building Society, which is considering various options; and legal firm DAC Beachcroft, which has begun to look at pre-let options. Pre-lets to KPMG (65,000 sq ft) and Walker Morris (100,000 sq ft) could transact later this year – both firms are seeking better offices in Leeds ahead of lease expiries. “Depending upon pre-let activity this year, prime headline rents may be revised up to £26 for 2012,” DTZ adds.
While investor sentiment in the Leeds office market remains fragile, it has not worsened this year. Prime office yields were unchanged at 6.25% for the first quarter and are expected to remain stable over the summer months. “Q1 has seen a number of new investment opportunities appear on the Leeds market, which are likely to transact in 2012. These include 1 Embankment occupied by KPMG and 6/7 Park Row occupied by Lloyds Bank,” DTZ notes.
Meanwhile, DTZ says take-up of office space in Newcastle city centre rose to 40,000 sq ft in Q1, with increased activity in lettings and enquiries indicating that sentiment is improving there too. The average requirement size rose to more than 5,000 sq ft, signalling renewed demand from larger occupiers, the firm notes.
Occupiers from a wide range of sectors showed interest during the first quarter, although DTZ notes a growing trend of engineering and offshore companies locating in Newcastle. The out-of-town market was stronger than the city centre, both in terms of the number of transactions and also the size of the deals.
The amount of available offices in Newcastle city centre continued to decline in Q1. Prime rents remained at £20 per sq ft and incentives stayed at two months per year term certain. DTZ expects prime rents to remain at this level until 2013 before rising as a result of a lack of available prime stock. “Prime incentives have already peaked and are forecast to harden,” it adds.
Investor sentiment in the Newcastle offices market is again fragile but has not worsened. Prime office yields were unchanged in Newcastle during Q1 at an estimated 6.50%, the firm notes.
