Development in Leeds is slowing to a halt. Although there are signs that retail is faltering, it is offices and residential that have so far taken the full force of the blow.
Starts have been abandoned at KW Linfoot’s two-towered Lumiere and the 160,000 sq ft phase three of MEPC’s Wellington Place. And according to Drivers Jonas, the council has put long-awaited development at its Sovereign Street site on hold.
The agency reports that construction starts in the city dropped from 22 last year to 14 when it surveyed the skyline in September.
The slowdown is much needed in a city where growth in office rents slowed to 1.2% this year. Forecasts by GVA Grimley show that growth will fall by 1.7% in 2009 and a similar amount in 2010.
Only two office schemes will be delivered next year – 90,000 sq ft at Toronto Square and 130,000 sq ft at City House – a refurbishment due to be delivered “sometime in December 2009”.
Retail rents show similar falls as the city enters a state of flux awaiting the delivery of mammoth amounts of space. By next year, rental growth is expected to have slipped 1.4% as retailers are paralysed by a wait and see attitude and a belief that the economy could get worse in the new year.
According to national press reports, Hammerson, for one, is believed to have put the £800m Eastgate Quarter on hold.
For those looking to fill space there is little cheer on the horizon. According to a recent report by the Local Government Association,one-fifth of Yorkshire jobs are in sectors it considers to be most vulnerable to recession – one of the highest proportions in the country.
It expects the county to lose 7,000 more jobs than the national average, and Huddersfield and Halifax are considered the second most vulnerable areas in the UK to the economic downturn.
The only upside for the property industry is that the downturn appears to be releasing sites back to the market. Last month, Tetley closed down its brewery on the River Aire, releasing a 5.5-acre site – potentially one of the best in the city.
However, whether developers will move forward with schemes is debatable, with forecasts for total returns in the city among the worst in the UK.
The Yorkshire capital is due to see retail and office returns drop a massive 12.3% and 11.6%, respectively, next year.
All eyes are likely to focus on Birmingham’s office sector in 2009, as five major schemes are due to be completed, all in the first half of the year. Although some have secured prelets, in total, the five schemes will deliver almost 0.5m sq ft of unlet grade A space.
The largest unoccupied chunks are Argent’s 11 Brindleyplace (107,000 sq ft), Calthorpe Estates’ Calthorpe House, Edgbaston (105,000 sq ft) and Nurton Developments’ No 2 Colmore Square (192,000 sq ft).
The race will be on to finalise deals on as much of this space as possible, although the empty rates relief that comes into force in April may offer some respite.
Whether this high level of supply will be matched by equally high take-up is doubtful, but gloomy economic prospects and local property player sentiment suggest that take-up is unlikely to come close to the record level (831,290 sq ft) recorded this year.
Office rental forecasts by GVA Grimley predict that average rents will drop by 2.9% during 2009 – the largest fall of all the UK’s top cities.
Sinking rents will have a predictable effect on capital values. GVA suggests a fall of 6.5%. Retail and industrial capital values are marked to slip also, by 4.3% and 8.4% respectively, reflecting the relatively limited activity expected in those sectors during 2009.
Nottingham, the East Midlands’ capital, can at least console itself that, for once, being in the shadow of Birmingham may shield it from the worst effects of the recession.
Lack of activity in the retail market, caused in part by the paralysis induced by Westfield’s long-running refusal to speculatively start redeveloping its 450,000 sq ft Broadmarsh Centre, means that, according to GVA Grimley, average rents are likely to slump by 2.6% over the year.
Only one major scheme is due to be completed in the city in 2009 – the 54,000 sq ft office first phase of Southreef Developments’ Southreef on Canal Street, which is still looking for occupiers.
Potential tenants may baulk at the quoting rent of £20 per sq ft – one that is higher than the headline level, and in contrast to the 0.5% drop in average rents that GVA Grimley predicts next year.
Demand for prime industrial sites could buoy up the sector, but even here GVA forecasts tumbles in average rents and capital values of 2.4% and 8.7%, respectively.
