Tuning in to Leeds’ soapboxes, you would be forgiven for believing the local market was set for a property renaissance. With projects such as the Arena, opening this month, and Europe’s only new shopping centre in 2013 opening at Trinity Leeds, local politicians grandly proclaim the city has turned a corner with something resembling a tentative swagger.
Leeds & Partners chief executive Lurene Joseph sums up the mood. She heads the outfit tasked with attracting investment into the city. After announcing the first new investment – by North American healthcare firm Alere – in September, she is in talks with two firms about expansion and six newcomers, and thinks the largely indigenous occupier market is set for new entrants.
“There is a clear recognition that London is overheating. We are looking to create a differentiated proposition – when you come to Leeds the ecosystem makes your business viable.”
But to agents on the ground, the recovery is fragile and gradual. Soaring take-up has brought the city to a cliff-edge of stock, and the market is starved of good buildings.
Grade-A stock in the centre is at its lowest in memory after a bumper first half of 2013. Leeds saw a robust take-up of more than 436,000 sq ft in H1 2013 – topping 2012 in half a year, and continuing the rise for seven consecutive halves.
According to research by Colliers International, new grade-A supply more than halved between 2008 -2012, and vacancy rates are 7% across the city and 16% in the core market.
With 1m sq ft in impending lease events, landlords are waking up to their position of strength. Incentive packages are less generous, and rents are expected to begin creeping upwards.
Refurbishment trend
Whispers are circulating of major UK and foreign investors touring Leeds for the first time in years as yields harden (see investment, p96), with one agent saying overseas interests were “falling over themselves” for central offices with refurbishment potential. GVA director Matthew Tootle described the shift as a “sea change in levels of interest”.
So is confidence translating into movement or is the gearbox sticking?
Occupiers are still smarting from the recession, and there is no doubt 2013’s figures are skewed. Yorkshire Building Society and Lowell, for example, are smashing deal records by recently taking around 80,000 sq ft each.
But for many, staying put remains the default position until the right opportunity arises (see panel, bottom left). In the meantime, refurbishments at 1 Victoria Place, 21 Queen Street, Minerva House and Capital House provide less risky options.
Jones Lang LaSalle director Jeff Pearey thinks this trend will continue despite the impending shortage: “We will see a raft of good-quality refurbishments which will go some way towards responding to the shortages of grade A. Business confidence and developer funding is improving, but there is still a deliverability question mark.”
And some agents are growing frustrated with the lack of movement, which risks hard-won gains in the race to attract “nearshoring” business and prevents stock recycling. Colliers director Roddy Morrison reflects: “What we need now is for developers and occupiers to engage on honest and realistic terms.”
Scarce core plots are almost exclusively earmarked for office space, although developers mutter that the right residential scheme would catch their eye.
Nobody is expecting major activity from changes to office-to-resi conversion rules, and some major mixed-use and residential schemes are understood to be scrapping or downsizing residential elements, as the Lumiere site owner did in March.
Outside the centre, a scattering of tertiary offices make for prime office-to-resi targets. And the £250m NGT trolleybus project should ease arterial roads, boosting the central office market and resi values along the route and projects like Brewery Wharf, New Dock, Aire Valley and Victoria Gate.
What Leeds needs
The main requirements in the city have become well known as the local offering fails to lure occupiers, with DAC Beachcroft, PwC, BSkyB, Addleshaw Goddard, Barclays, the council and the NHS now dubbed the “usual suspects”.
Some are withdrawing altogether – Walker Morris is staying where it is now, while Squire Sanders is also expected to extend its current lease. Agents describe a stalemate, with professional services occupiers preventing good central stock being recycled, and nobody yet willing to back speculative movement. While some have made moves, the lack of options and the scars of shelved plans are making feet drag.
With landlords squeezing incentives and developers feeling more optimistic, the equation is tipping in favour of the prelets. “Before, companies could not make a 15-year commitment, whereas now they are looking at it through a fresh pair of eyes,” says Elizabeth Ridler, partner at Knight Frank’s Leeds office.
“Financing is not as much of an issue as it was and there is more market confidence. But it is still very cautious.”
MEPC encapsulated this at Wellington Place, pushing the button on a 35,000 sq ft project with less than 50% prelet to law firm Shulmans. All eyes are on NFU Mutual’s Whitehall Riverside, Rodyhouse’s Central Square and the council’s Sovereign Square to see how much appetite developers anticipate from occupiers for new stock.
