Recently appointed mayor Sir Peter Soulsby has wasted no time making his mark on Leicester’s office market. Fresh to his post, he has run the rule over the masterplan for the proposed £150m regeneration of a site near the station and declared that the 10-year focus on this 300,000 sq ft project, far from offering a boon to the city, could be holding back wider development.
The problem is that the grandiose proposal has never got off the ground. Soulsby initiated a root-and-branch Leicester City Office Development Opportunities study to search for other potential sites for office development around the city, which will be completed this autumn. The findings, along with a new council strategy, will be unveiled in the new year.
Soulsby says of the initiative: “It’s important we identify areas with development potential. But it’s right that we roll out other areas where investors could bring value and investment. I’m determined that this is something that will lead to action rather than gather dust on the shelf.”
Ashley Hancox, head of regional agency at CBRE, says: “Of course it’s disappointing to see a major scheme potentially shelved, but to get a project of that size off the ground is virtually impossible for a city the size of Leicester. It may look like stifling opportunities, but the pendulum has swung and development is now tenant-driven.”
He adds: “What does help is active local authority assistance, and work going on in Derby is testament to that.”
Indeed, Leicester’s council has also indicated that the document will help to allocate car-parking spaces to office developments, while Soulsby also stresses that the council is prepared to use its powers to forcibly buy land to ensure key projects can go ahead.
“Leicester is a compact city and there are a number of equally viable sites, but it really is about finding occupiers first,” says Matthew Smith, head of Jones Lang LaSalle’s Nottingham office. “What you need is planning agreed and everything in place so that you can respond quickly. Without that it will be very hard to get anything off the ground.”
One of the early spin-offs from the study has been the creation of an office market forum, made up of agents, developers and other property professionals. Similar groups exist in Nottingham and Birmingham, and Leicester’s has now been established, with a view to helping potential occupants understand the market.
Lambert Smith Hampton is steering the report, having been appointed by Leicester council to carry out the major study in June with a remit to help increase prime office space in the city.
Jane Taylor, director at LSH, says the research has been wide-ranging, geared to looking at opportunities for provision and occupancy. “We asked all city landowners and developers to provide us with information on their sites, and we’ve spoken with them individually about the opportunities and challenges, and why the schemes are at the point they are,” she says.
“We’ve also completed an occupier survey for those companies both in the city and out of town, establishing their current and future needs and any possible obstacles or issues to their expansion.”
The council says that it cannot comment further at this point, but Louise Seymour, development team leader at the council, emphasises that the project has been about taking a “fresh look” at the city and its office provision, while being “more pragmatic given the very stringent planning policies now in place for large-scale single schemes”.
It seems increasingly likely that Leicester’s future needs will be met through a number of smaller projects. Smith adds that, with both city centre and out-of-town office space ageing, more modern stock would be positive, but only with proven occupier demand.
However, Peter Doleman, head of Innes England’s Leicester office, argues that the possibility to create major space around the railway station should not be discounted. “I would like to see the possibility of significant [office] space being developed on the station site. The real tragedy would be if a major occupier was looking for space and couldn’t come to Leicester because of lack of provision.”
East Midlands: Supply or demand?
Office rents in the East Midlands are unlikely to increase before 2013, according to the latest research from Lambert Smith Hampton.
Both Nottingham and Leicester have managed to maintain their office rental levels, while the first of two buildings in Lowbridge’s Friar Gate Square scheme should add around 32,000 sq ft of space to central Derby before the end of the year.
According to Nick Hosking, director of Derby-based leasing agent Innes England, “advanced negotiations” for a tenant are under way.
According to DTZ, take-up fell to 41,000 sq ft in Nottingham, city centre in the second quarter, with the majority of transactions sub-5,000 sq ft, triggered by lease events and completed primarily by smaller firms. The only grade A deal of the quarter was the 19,000 sq ft letting to debt liquidation specialist TDX Group.
Grade B and C availability both increased as space was returned to the market. In particular, DTZ and LSH are jointly marketing 65,000 sq ft at Newland House and 40,000 sq ft at Newtown House.
Conversely, grade A availability decreased due to lettings activity, while market polarisation has strengthened, given the weak grade A construction activity. There is now only eight months’ supply of grade A space at current take-up rates, compared with 4.4 years of grade B.
“There are a lot of consented schemes in Nottingham but very little development activity. Developers need a significant prelet before they can be built,” says Andy Venables, director of the office team at GVA.
“It’s rather a chicken and egg situation: is lack of availability stalling new companies coming in or is the demand not there? Most of the existing space is dotted around the city and not necessarily in suitable environments, but with the current impasse there is certainly very little grade A.”
