Next year promises to be an exciting one for the Leeds office market as a new generation of office stock at schemes such as Wellington Place, Central Square and 6 Queen Street (pictured) completes. Now, though, the question is not only which companies might be knocking on those doors, but whether they will rush anywhere at all.
Could a preference for grade-B second-hand space, demonstrated clearly last year, as shown by figures from EGi Offices Database (see below), continue this year and beyond? It’s an unsettling thought, especially for those promoting the spanking new space rising up around the city centre.
Understandably, those investing in these projects are convinced that tenants for their space are just around the corner. This may be literally true in Leeds, where local churn, rather than inward investment, accounts for the majority of new lettings.
“Leeds is seeing a dramatic resurgence in demand, driven largely by professional services that are clamouring to secure city centre, high spec office space. To attract the best talent, these occupiers are looking for accommodation that will provide staff with the best amenities and location,” says Chris Darroch, fund director at Hermes Real Estate, joint owner, with Canada Pension Plan Investment Board, of Wellington Place, where 105,000 sq ft is under construction.
Lawyers and financial services firms have been the mainstay of new office take-up in Leeds for more than a decade. But will they move this time? “There is 1.2m sq ft of lease events in the next four years,” says Jonathan Shires, senior director at CBRE. “We don’t know what percentage of those occupiers will move, but if they need more space they will vacate for somewhere new. On the other hand, if they aren’t expanding and are in a modern building, they may stay put.”
But Jeff Pearey, head of JLL’s Leeds office, says: “I think it will be mainly corporate interest in the near future,” pointing to a 70,000 sq ft city centre requirement from energy firm RWE. That may be so, but last year’s biggest corporate occupier opted for second-hand space (see below).
Pearey remains unfazed as he believes Leeds has a price advantage. “Leeds is the cheapest of the big six centres,” he notes. While prime rent for new space is likely to rise from a historic £25 per sq ft to £28 over the next couple of years, it is likely to remain at a discount to centres such as Birmingham and Manchester where rents are already topping £30.
The upward thrust of rents may spur some occupiers to sign sooner rather than later. “Preletting is always difficult, but the lack of supply in Leeds means a lot of companies are thinking further ahead,” says Rob Mordey, European director of Rockspring, owner of 70,000 sq ft under construction at 6 Queen Street.
What is noticeable by its absence is talk of demand from tech companies. While Google’s recent appearance in Leeds (see below) is welcome, unlike Manchester, the West Yorkshire capital is not promoting itself as a stand-out digital destination. Nevertheless, Steve Jude, chief executive of serviced operator Citibase, which has two centres in Leeds, expects smaller companies to power new requirements for the more flexible space serviced offices can provide.
He says: “We expect the government’s pledge to create a northern powerhouse will strengthen small firms in Yorkshire and allow regional SMEs to more easily establish a presence in the key cities.”
Google pops up
Last month global internet giant Google launched its first UK pop-up business workshop in Leeds Dock, opposite the Royal Armouries. The company is providing mentoring to local occupiers and advising them how they can improve their digital skills. The project (digitalgarage.withgoogle.com) is to last six months and could be rolled out to four other UK cities. Although Google’s pop-up amounts to only 2,000 sq ft, Leeds property people are hoping this is the start of greater things and that the tech corporate is tempted to secure a permanent foothold in the city.
Second-hand space is king in Leeds
Grade-B space accounted for a greater percentage of take-up in Leeds last year than in any of the other Big Six UK regional centres. Figures from the EGi Offices Database show that three-quarters of take-up was in poorer-quality space in Leeds, compared with two-thirds in Edinburgh and half in Manchester and Birmingham.
The largest taker was law firm DAC Beachcroft, which signed for 25,000 sq ft of refreshed offices at St Pauls House, 23 Park Square South, narrowly beating French motorway operator Sanef, which opened a 24,000 sq ft call centre at 110 Albion Street to process payments from the newly automated toll collection system on the M25’s Dartford Crossing.
Jonathan Shires, senior director at CBRE, says: “This kind of space offers better value for certain companies, especially those looking for less than 10,000 sq ft.” The data backs this up: the majority of grade B take-up in Leeds recorded by EGi was in units smaller than 5,000 sq ft.
DTZ director Adam Cockcroft suggests another reason. He says: “Grade A space comes with a
10 to 15-year lease and in the current climate a lot of businesses are not willing or able to commit for that long.” Possibly for that reason alone, demand for good-quality second-hand office space shows no sign of abating. Agents report that other law firms are already sizing up the existing premises of lawyer Squire Patton Boggs ahead of its move early next year to 6 Wellington Square. Up to 70,000 sq ft of second-hand space could be taken by one or more new tenants at 2 Park Lane.
Where now for Leeds inward investors?
While Marketing Birmingham has been lauded this spring for helping to net HSBC’s new 200,000 sq ft UK retail banking HQ for the Midlands and Manchester’s MIDAS has won similar plaudits for encouraging US bank BNY Mellon to expand in the North West capital, Leeds’s inward investment outfit has come in for a drubbing. At the end of last year Leeds city council announced that Leeds & Partners would be wound up as a semi-autonomous entity and its function integrated into the Leeds City Region LEP.
As inward investors could play a crucial role in filling the next wave of office space in Leeds (see main text), the timing could hardly be worse. Local commentators are candid about the organisation’s failure to draw in substantial relocations, but, unsurprisingly, none wishes to comment publicly. “They got it wrong,” says one leading agency figures. “They focused on sectors that were never right for Leeds and put all their eggs in one basket.”
Time will tell whether the reshuffle, which took place last month, will lead to new arrivals landing in Leeds’s` office blocks, but for now the focus may be on nurturing smaller businesses rather than chasing larger ones.
