Office take-up in Sheffield surpassed 480,000 sq ft in 2015, the highest annual total since the recession.
The city’s acquisitive universities, which are keen to expand within the city centre, have skewed the total, accounting for almost a third of last year’s office deals. Activity included the University of Sheffield purchasing 65,000 sq ft at building V2 at Velocity and the letting of the 50,000 sq ft old Post Office at Fitzalan Square to Sheffield Hallam University. With more than 60,000 students, Sheffield’s universities are continuing to grow.
“Yet even without the universities, we’ve surpassed the 300,000 sq ft 10-year average,” says Commercial Property Partners’ Rob Darrington. “There has been a lot of pent up demand and occupiers have finally had the confidence to take action.”
Companies committing to additional space include Sky Bet, which leased an additional 6,000 sq ft office at Electric Works, and attorney Withers & Rogers which took 7,500 sq ft at Derwent House. Meanwhile XLN Telecom let a further 14,000 sq ft at North Bank and solicitor Wake Smith took 12,500 sq ft at Velocity.
Sheffield has also attracted inward investment. US law firm Fragomen has committed to leasing 12,000 sq ft at Saville House, its first UK office outside London.
Knight Frank’s Peter Whiteley says: “There are several enquiries of between 10,000 and 30,000 sq ft, mostly for the city centre, particularly from professional services occupiers and those looking to locate back office operations.”
As demand improves, grade-A supply is limited and Sheffield’s two key current office developments look set to achieve record rents.
CTP and Development Securities have just completed 76,000 sq ft of grade-A stock at 3 St Paul’s Place. The first speculative office to be delivered since the recession is about to seal a 16,000 sq ft letting to engineering consultancy Arup, which is reported to be paying a record £23.50 per sq ft for the top two floors.
Meanwhile, Scarborough Group is on site developing the third phase of Digital Campus. Acero Works will provide 80,000 sq ft of office space, with completion due in summer 2017. Like St Paul’s, the building is expected to appeal to professional services, but offering large floorplates next to Sheffield station, could also attract back-office relocations.
A lot of secondary office space has been converted into residential in Sheffield and a shortage of good-quality stock is pushing up rents. Knight Frank’s Whiteley predicts grade-A rents could hit £25 per sq ft by the end of the year.
Rents for good grade-B space are rising even more steeply. “Grade B traditionally achieved £10 to £12 per sq ft, but with less stock on the market, that has crept up to what’s likely to be £14 to £16 per sq ft by the end of the year,” says Fernie Greaves’ Tim Bottrill.
However, the challenge for landlords is to find decent buildings to refurbish and bring back to the market, says BNP Paribas Real Estate’s Guy Cooke.
The optimism around Sheffield’s office market has overshadowed news that the city is set to lose a key office occupier.
In January, the government announced that by 2018, the offices of the Department for Business, Innovation and Skills at St Paul’s Place would be closed with the loss of around 150 jobs.
The news may fly in the face of the government’s northern powerhouse initiative, but agents remain buoyant. Whiteley says: “There are other government departments in 2 St Paul’s and they may fill with other public sector staff. If they choose to let it, they’ll have no trouble finding a tenant.”
Competitive cost base
Sheffield City Council is, however, determined that the city is poised to lure major relocations, claiming its more competitive cost base gives it an advantage over the likes of Leeds and Manchester.
Inward investment will never be Sheffield’s holy grail, yet developers are keen to woo occupiers looking to move staff out of London.
Urbo Regeneration intends to deliver a new office district just outside the city’s ring road, targeting inward investors. West Bar will provide 1.4m sq ft of mixed-use space, including around 650,000 sq ft of offices.
Urbo’s Peter Swallow says: “Sheffield lacks sites to accommodate big inward investors. The first phase is likely to incorporate retail, residential and something in the region of 100,000 sq ft of large floorplate offices.”
The scheme will be prelet driven. Swallow hopes planning permission will be granted in the autumn for construction to begin next year and complete in 2019.
Retail and leisure: the wait goes on
It was hoped a development partner for the £480m Sheffield Retail Quarter would be announced by the end of March but, as EG went to press, a selection is yet to be made.
Since Hammerson pulled out of its £500m Sevenstone project in 2013, pressure has mounted to secure development in a city that continues to haemorrhage retail spend.
Plans were drawn up for a 900,000 sq ft mixed-used scheme, comprising around 700,000 sq ft of retail and leisure, together with residential and office space. In September 2015, Queensberry, Lend Lease and Aspire were named as the shortlisted parties.
Seven months on, there is little sign of progress. Sheffield City Council’s executive director of place Simon Green says: “It takes time to get these things right. We’re hoping to announce a partner in spring or early summer.”
The council will have to get a move on if it is to meet its goal of having the majority of the scheme complete by the end of 2019.
“We’re keen to get on board,” says Queensberry’s Paul Sargent. “Sheffield desperately needs this to be delivered. It really is now or never.”
Queensberry, selected in January by Barnsley Council to manage the development of its own £100m retail-led regeneration scheme, is proposing to deliver around 500,000 sq ft of retail, including a 180,000 sq ft John Lewis. Persuading John Lewis to relocate from its current Sheffield store to anchor the new scheme is critical and it is rumoured the council’s protracted wooing of the retailer partly accounts for the delay.
Agent Harper Dennis Hobbs has carried out a retail assessment on the council’s behalf, advising on scale, design and likely impact.
Its findings show Britain’s sixth largest city captures only 13% of its catchment and languishes in 43rd place in HDH’s retail rankings, sitting alongside the likes of Stoke and Northampton. The new scheme could boost annual spend by 26% and promote Sheffield to a slightly more respectable 32nd place.
It may take time to win the confidence of retailers, which have spent years watching on the sidelines. Yet agents remain optimistic that with a trusted developer, the scheme will let.
“There is plenty of demand for the right kind of space. Once a decision is made, retailers will be keen to get on board,” says Central Retail’s Simon Lyons.
Demand is demonstrated by the success of The Moor. While the SRQ has sat on the drawing board, Ashcroft has revitalised one of the city centre’s traditional retail thoroughfares.
Construction of a new Primark store will complete in May and The Light will open a nine-screen cinema in early 2017.
“Four of the six restaurants in phase 2 are either confirmed in solicitors’ hands, while two of the four additional retail units are under offer,” says JLL’s Damian Sumner.
The Moor, to the south-east of the city centre, will help link Sheffield’s disparate retail and leisure pitches. The challenge for SRQ is not only to capitalise on demand but fully integrate The Moor, Fargate and Devonshire Quarter.
