The Leeds office market is in limbo – and that is putting it kindly. Last year was, at best, quiet, with Donaldsons figures showing just 453,000 sq ft of space signed for. This is well below – although not disastrously so – the 525,000 sq ft 10-year average and down nearly 100,000 sq ft on 2005’s level.
Anecdotal evidence shows that take-up has since slowed further. Ask agents about the latest large deals and they still talk about Eversheds signing up for 125,000 sq ft at Bridgewater Place, a deal announced in May 2003. The law firm has yet to move to the delayed scheme (see box).
Rents tell a similar tale. Leeds reached a milestone when King Sturge and GVA Grimley signed up for space at City Point at £25 per sq ft. But this was two years ago.
With development hitting its peak last year, occupier requirements thin on the ground and developers showing little appetite for speculative development, who will be the next Eversheds and allow that all-important growth in rents?
Jeff Pearey, head of Jones Lang LaSalle’s Leeds office, admits that requirements have been sluggish. “A number of requirements at the end of last year stuck their toe in the water and have gone again,” he says, adding that the situation seems to be improving. “Supply is limited and that is pushing the large requirements towards prelets,” he adds.
Known – but not confirmed – requirements include GE Capital, which is believed to be looking for 180, 000 sq ft, and solicitor Walker Morris, which is said to be looking for 120,000 sq ft. The latter has been taking flexible space around the city for some time however, there are doubts about whether it will actually sign a prelet. There are also doubts about whether GE Capital can be enticed into the city centre from its location near the M62.
Richard Thornton, head of office agency at King Sturge, is doubtful about the speculation. “A lot of people have courted Walker Morris, but it still has seven or eight years to go on their current lease,”he says.
GE Capital, he says, is too cost-sensitive to pay £25 per sq ft and is now paying between £10 and £15 per sq ft. He adds: “Even when it moved to Newcastle, it was not truly prime.”
Thornton suggests that activity is likely to come from financial services that were active last year and, at the smaller end of the scale, the primary care trust has announced a requirement for 30,000 sq ft so it can consolidate into the city centre. However, these are not the sort of requirements to sign up for a prelet.
That raises another problem, says Glenn Levison at Sanderson Weatheralls. “There are sites to satisfy these requirements if they come along, but there are no buildings. We have to build them something,” he says.
Yet developers seem less keen to rely on a latent demand. Just two schemes are due for completion in 2007: Bridgewater Place, which is 80% prelet and the 70,000 sq ft Livingstone House.
Levison believes that, if the planners are reasonable, a couple of buildings will get under way this year next to Whitehall Riverside. Agents are placing bets on whether MEPC/Hermes will crack on with a speculative build at its £1bn scheme. It still has No 2 Wellington Place on its books, despite its completion last year.
A masterplan was unveiled in December but agents now want to see how this will be broken down and made deliverable.
Outline planning permission was granted in March, and MEPC maintains it will have started an office building by the end of the year. Whether this will be a 120,000 sq ft or a grander 250,000 sq ft building is still the subject of debate. General wisdom seems to suggest MEPC may opt for the smaller building.
As JLL’s Pearey points out: “Bridgewater Place was 240,000 sq ft but it did not put a spade in the ground until Eversheds took part of that space.”
Since then, Ernst and Young have signed up for 27, 000 sq ft and BDO Stoy Hayward committed to 19, 000 sq ft in March.
Other schemes expected to start this year are HBG’s Latitude, where there is consent for 598,000 sq ft of offices, and Bridge House. Kenmore bought the Bridge House site on the corner of the Leeds ring road and Wellington Street for a rumoured £9m and is in the throes of finalising the scheme.
It has indicated that it will move away from the outstanding planning consent for residential and offices and become a hotel and offices – a clear sign of overheating in the Leeds city-centre-living market.
City Square House is also expected to get off the starting blocks. Demolition of the existing building is under way, with a view to potentially speculatively building up to 140,000 sq ft.
As it has the last site on the prestigious City Square, developer McAleer & Rush should be bold. Agents believe this would be the best hope for rental growth.
The last headline rent of £25 per sq ft was signed at City Point, alsoon City Square. To subsidise building, rents now need to be £27.50-£28 per sq ft.
“We’ll achieve this but the building will have to be iconic or quality in the prime city-centre area,” says Thornton. “That will happen when we see City House – it’s the only scheme in prime Leeds.”
Profile: The Dalek avoids extermination to open more than 12 months late
Bridgewater Place – or the Dalek as it is known locally – has had more than its fair share of woes. More than 12 months late, Landmark Developments’ and St James’ Securities’ 32-storey, 1.5-acre scheme was finally launched last month.
The local property fraternity has applauded the developers’ intentions. Many talk of the “blandness of architecture in the Leeds market” and the “need for iconic buildings”, as demonstrated by the fact that out of 230,000 sq ft of offices, Bridgewater Place is now 80% let.
Yet problems during construction threatened the whole project.
Many agents can list the well-published catalogue of disasters that included contractors going bust, builders walking off site, changes to design, and problems with the weather. “There was even talk of one of the builders being scared of heights,” jokes one. But, joking aside, Bridgewater Place is the first of a series of tall iconic buildings in the development pipeline.
Local agents and developers now want to know what went wrong and what lessons – practical and financial – can be learned.
The developers bought the site seven years ago. By April 2004, they were on site. Ian Barraclough, managing director at St James’ Securities, describes the project as “challenging”, and Chris Gilman, director at Landmark, admits “the latter stages were not without issues”.
But he adds: “A site of this size is never quick. There’s a lot of talk of tall buildings in Leeds, but this is the only one that has actually been built.”
The weather proved to be a particular problem. Barraclough describes how contractor Bovis asked the Met Office for 10-year average wind speeds in Leeds to determine the number of days it would be unable to operate cranes. This proved to be an inaccurate measure. “It’s been an incredibly windy few years. The number of days lost has been unprecedented,” says Barraclough.
Extra costs will be absorbed by Bovis, says Gilman, as the developers paid extra for a fixed price.
Gilman says they have only lost out to one occupier, “an insurance company that thought the building was a bit flash. Business adviser Grant Thornton was a bit unsure, but it had to move out of its existing building in September”.
Luckily for the developers, Eversheds had room for manoeuvre at its existing accommodation. The lawyers had planned to be in by September 2006, but will relocate next month.
Other lettings have followed and rents have increased. Eversheds signed at £22 per sq ft with an inducement of between 9-12 months rent free for coming in first. “We’ve just done a deal at £25 per sq ft and £2,500 per parking space,” Gilman says.
In line for the 10, 000 sq ft of retail and leisure is favourite agent haunt Sous le Nez en Ville, which is opening a 100-cover restaurant called Sur le Pont. Others, such as Philpotts, Bagel Nash and the Smoothie Company, will join a 4,600 sq ft Tesco Express at the scheme.
Mulling over the complications, Gilman and Barraclough remain open-minded about future projects. “We are not going to rush into another Bridgewater Place,” says Gilman. Barraclough adds: “We are certainly going to enjoy it when it’s over.”
But the latter hints: “We might do something a bit smaller. We think there is demand out there for another large building, possibly in Holbeck, and there is also potential in the traditional core – but not as tall as Bridgewater.”
