Agents boast about the city’s recent take-up, but is there enough demand to reduce Sheffield’s supply levels? By Daniel Cunningham
When it comes to discussing Sheffield’s city centre office market, local agents would much rather talk take-up than availability.
Creative Sheffield, the city’s development company, says that there is 378,000 sq ft of grade A stock standingempty in the city centre, with a further 136,000 sq ft due to be completed this year.
Agents argue that Sheffield needs this stock to compete as a regional office location, and point to this year’s take-up levels as evidence that there is genuine demand for space.
Guy Gilfillan, head of Lambert Smith Hampton’s office in the city,saysthat around 160,000 sq ft was let or sold in Sheffield in the first half of 2009 and, punching figures into a calculator,adds that more than 100,000 sq ft was takenin Q3.
He says that last year’s total for the city centre was around 250,000 sq ft, in line with the five-year average.”We are running at record levels for Sheffield,” says Gilfillan, describing it as an “ironic twist”, given the state of the wider regional market.
Agents insist that a further 60,000 sq ft is in solicitors’ hands, and that a year-end total for central Sheffield of 300,000 sq ft is within reach.
So, whatis the source of this take-up- and is there enough demandin reserve to dent supply levels?
This year’s deals paint a picture of Sheffield as a market buoyed by indigenous demand, weighted towards the public sector, but with locallybased private sector occupiers also upgrading into the city’s new generation of stock.
Headline rents
Incentives, which are reported to beup to 24 months rentfree on 10-year leases, are no doubt encouraging demand. Agents say headline rents are stable at £18.50 per sq ft, the level achieved in 2007, with £19 quoted at some schemes. Considering that a headline rent of £27 per sq ft was set in Leeds this summer, Sheffield offices are relatively cheap.
So far, the year’s largest deal is the Department for Children, Schools and Families’ July purchase of the 65,000 sq ft second phase of CTP St James’ St Paul’s Place at an undisclosed price.
Elsewhere, healthcare charity UK Biobank has taken 10,000 sq ft at GMIProperty’s and Scarborough Group’s recently completed 50,000 sq ft second phase at Sheffield Digital Campus.
James Poskitt, managing director of GMI, says that landlords are being forced to be flexible when it comes to lease terms and incentive packages, but that it is important for developers to get “bums on seats”. He says: “We have a great building in a great location, but the wider property market is not so great.”
Agents decline to name live requirements, aside from law firm Halliwells’ for20,000 sq ft, now linked to GMI’s and Scarborough’s Digital Campus.They insist, however, that take-up rates can be maintained. “Sheffield is full of companies that have survived here during the hard years tobecome lean and mean, but are now ready to expand,” says Gilfillan.
Creative Sheffield’s Fletcher says: “In every regional city over a given period of time, the majority of take-up will be internal. But a key criteria in attracting inward investment is the availability of quality property. Hence, we are in a good position.”
Some agree that the focus now needs to be on attracting occupiers to the city. Knight Frank partner Tim Bottrill says: “We’d love an inward investor in Sheffield, and this is the first generation of quality stock we’ve had to show to occupiers.”
While local property people put a positive spin on the latest crop of city centre offices, there is no avoiding the fact that there is around two years’ worth of supply at recenttake-up levels on agents’ books.
It includes Urban Property Services’ 108,000 sq ft Saville House on the edge of the city centre, with Tiger Developments’ 58,000 sq ft Citygate due to be completed soon.
Sheffield’s agents have refused to criticise developers’ enthusiasm, probably becausethey welcomed theproperty industry’s interest in their city. But how do developers feel about itsfuture?
GMI and Scarborough and CTP James both have consent for new phases of their schemes.But GMI’s Poskitt says that further progress at the 600,000 sq ft Sheffield Digital Campus will be “market led”. Asked what size of prelet would spur the joint venture partners into action, he says: “In today’s climate, it is intensely difficult to make those predictions.”
The Sheffield office market’s mettle will be judged in the coming few years by its ability to absorb 500,000sq ft before the next upturn. Developers will be watching the market intently.
Industrial inaction
Conditions in Sheffield’s industrial market remain tough, although there have been rays of light amid the clouds for some developers.
This summer, local developer JF Finnegan snagged one of the country’s largest industrial prelets of the year when it let 112,500 sq ft at Beighton Link business park to Swedish manufacturer Sandvik for a European “centre of excellence”.
And St Modwen won consent to build a 120,000 sq ft trade park at Penistone Road, at which it has already presold 75,000 sq ft to storage firm Ready Steady Store.
But Nick Baker, head of agency at BNP Paribas RE’s office in the city, says that demand is generally sluggish. “There has not been a great deal of activity by Sheffield’s standards,” he admits.
Some developers remain exposed to the market. UK Logistics Fund’s 412,000 sq ft Blade unit remains empty more than two years since completion, and CBRE Investors has units of 290,000 sq ft and 330,000 sq ft at its Sheffield International Rail Freight Terminal, both vacant since completion in 2008. The landlord has recently won consent to convert the units into manufacturing space.
“The market is oversupplied across South Yorkshire,” says Baker. “Demand has not materialised as anticipated.”
Despite the low volume of transactions, agents say that the headline rents for sub-10,000 sq ft units are stable at £5.50 per sq ft, with larger units at around £4.75 per sq ft. Landlords are offering increasingly generous incentives to ensure that headline rents are maintained, and agents report that occupiers can expect 12-18 months rent free on a five-year lease.
Market at a glance
Headline office rents are £18.50-£19 per sq ft
Take-up to September was 274,000 sq ft, of which 184,000 sq ft was in the city centre
Grade A city centre availability is 378,000 sq ft
136,000 sq ft of prime stock will be completed this year
Source: Creative Sheffield; Lambert Smith Hampton
