EG reprints some of the predictions made over the past 12 months to see if agents got it right. We also ask agents to forecast market movements for the year ahead
Leeds predictions
Take-up is set to hit 520,000 sq ft after 2005’s significant dip.
Supply: 680,000 sq ft. The influx could all come at once, outweighing demand.
Rents: limited prospects for growth. Refurbishments will break through the £20 per sq ft barrier. Out-of-town rents are unlikely to pass the £20 mark.
Now Agents’ optimism about take-up looks justified. Richard Thornton, head of King Sturge’s Leeds office, says: “First-half take-up is 285,000 sq ft. Counting the transactions in solicitors’ hands, we will certainly meet if not exceed expectations.”
With more than 680,000 sq ft set to hit the Leeds market this year, Jeff Pearey, head of Jones Lang LaSalle in the city, admits that “the development pipeline graph does look quite scary”.
But, he adds: “Well over half is already prelet. After next year, supply drops to 100,000 sq ft of completions. We are classically a supply-driven market, so it is good that developers are now considering space, and this could stimulate demand.”
But could lending on speculative development be about to come to an end? Chris Taylor, area director for property finance at Lloyds TSB, says: “We don’t actively seek speculative lending opportunities, although we have moved our position recently to consider partially speculative schemes, where there’s an income stream to fund interest payments.
“As for the office market in Yorkshire, we can see considerable tensions. So far, we’ve not had a lot of opportunities come our way, so we haven’t had to go to the trouble of avoiding it. If something did come our way, we’d want to test the proposal very carefully.”
Rents have grown, reaching £25 per sq ft, although these levels were pushed up on agents’ own requirements. Agents are now looking to 2008, where they hope £27 per sq ft could be achieved.
Rents for refurbished space never broke the £20 per sq ft barrier, but Pearey says a number of deals have been signed at £19.50. With grade A supply set to rise, rents are unlikely to pass £20 this year.
Sheffield predictions
Rents will reach £20 per sq ft by the end of the year.
Now Sheffield offices fell wide of this mark, with grade A rents stuck at £18.50 per sq ft. Peter Whiteley, partner at Knight Frank’s Sheffield office, attributes the shortfall to a lack of prime office accommodation, but adds: “We are in discussions with a number of occupiers, and I’m confident that a £20 headline rent will be achieved by the end of 2006.”
5m sq ft will come on stream.
Rents could rise by 25p to £4.25 per sq ft by the end of 2006, but they will not reach the level of the Midlands, at more than £6 per sq ft.
Now More than 5m sq ft of space is now under construction in Yorkshire, but Andrew Gent, director atLeeds-based Gent Visick, says this will “create the market rather than frustrate it”.
Rental growth seems to support this assessment. The best reported rents stand at £4.75 per sq ft, although Gent does not see these surpassing £5 per sq ft by the end of the year.
However, he says that the Midlands will always remain a little bit ahead of Yorkshire.
A requirement for 500,000 sq ft is understood to be looming. “We only need another one of those, and vacancies will drop dramatically,” says Gent.
“We have been unlucky in the past with occupiers needing space tomorrow; so for the first time we’ve got product and we’re waiting with bated breath for the punters.”
The Frenchgate centre will push Doncaster up from 60th to 19th in Experian’s retail ranking.
Now The town is still a little way off achieving that rating, says Tom Cullen, associate director in Colliers CRE’s Leeds office, although he expects the Frenchgate centre to have a significant effect on the town’s popularity in 2007.
“As the bigger redevelopment plan for Doncaster proceeds including the road reconfiguration programme, the relocation of the football ground and, of course, the ongoing trading of the shopping centre the city will really start to reap rewards.”
Activity will fall off in 2006 as a number of prime buildings have just been traded. Industrial will see another sub-6% deal.
This is the height of the market and many investors are happy to top up rents in order to capitalise on hard yields.
Speculative funding will return a sign that the top of the market is being reached.
Now As in other parts of the country, yields hardened further. In industrial, the market was driven by distribution.
Gareth Gibbs, director of investment at Colliers CRE, says landlords are, as expected, compensating for a lack of substantial rental growth with minimum fixed increases and top-up deals, which have pushed equivalent yields down to around 5.75%.
They join retail yields of 3.8% and an office yield of 4.75%, following the £64m sale of Town Centre Securities’ Whitehall Riverside Exchange in Leeds.
Gibbs adds that, with one interest rate rise already confirmed and further increases on the horizon, many debt purchasers are rethinking their strategies.
The largely unsatisfied demand from institutional and other cash purchasers will further depress yields. “However, overall indications point to yields stabilising. Any future levels of activity will largely be down to prospects of rental growth in the occupational market. This will only be for absolutely prime product.”
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Deputy prime minister John Prescott has been stripped of his department and battered by controversy. How does this affect his standing in the Yorkshire region, and how detrimental will this be to getting Yorkshire’s voice heard in government? |
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“It won’t make a significant difference. Take his policy, the Northern Way. We’ve seen so little benefit that, if his role is diluted in any way, it won’t make a lot of difference.” Richard Thornton, King Sturge |
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“His standing will be enhanced. He has been an MP since 1970, and was only in government for nine years, so his reputation is more than just his role at the ODPM. Previously, he was tasked with considering the whole country. Now he can focus on standing up for Yorkshire.” David Wells, Scarborough Development Group |
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“With Prescott no longer in charge, and the changes at the DCLG, his policies, such as the Northern Way, could well suffer, and the region will need to look to Yvette Cooper, John Healey and Clive Betts to grasp the nettles of our regional agenda and promote them at the heart of the government.” Ian Gray, Jones Lang LaSalle |
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Source: Knight Frank |
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Source: Colliers CRE *Forecast |
