LEEDS CITY REGION
SPRING 2020
OUTLOOK SUMMARY
• Leeds city centre saw strong office take-up in 2019, set against the broader backdrop of political and business uncertainty. The city’s economy will be boosted this year by the arrival of significant, high-profile occupiers such as Channel 4, HMRC, NHS Digital and Sky.
• The severe shortage of grade A city centre office space is constraining take-up, but developers remain reluctant to commence large schemes on a speculative basis. With several sizeable enquiries in the market we expect healthy take-up in 2020, with further pre-letting activity and more
refurbishments of existing buildings to grade A standard.
• Given the lack of immediately available grade A office stock, we anticipate Leeds prime rents to increase to £34.00 psf by the end of this year from the current benchmark of £30.00 psf. Out-of-town rents will also face upward pressure from the established £24.00 psf at Thorpe Park.
• Industrial occupier demand remains resilient. The low number of big shed deals in 2019 was largely the result of highly constrained supply, although wider business uncertainty is playing a part. In the medium term, supply should be addressed by new sites such as Gateway 45 coming forward.
• Commercial property investment in the Leeds City Region totalled £1.3 billion in 2019, up on 2018. With the greater certainty provided by December’s decisive general election, we expect a higher level of prospective purchasers this year and more competition for assets. However, for those buyers seeking good quality assets, the availability of product will remain a key challenge across all sectors.
• Prime office and industrial yields should remain at their current keen levels of 5.0% and 5.25% respectively in 2020.
KEY ECONOMIC AND BUSINESS STATISTICS
LEEDS YORKS &
HUMBS Growth – next 10 years
Economic growth Employment growth Population growth
19.6%
5.2%4.8%
16.1%
2.0%
3.0%
Earnings and affordability Average house price
Average house price growth, 2019 Average house price to incomes
£190,753 4.8%6.8
£168,382 3.9%6.2
Prosperity and productivity Average weekly earnings Unemployment rate (ILO) GVA per worker
£5344.4%
29,347
£5154.5%
21,589 Skills and Innovation
% NVQ4 or above
Students as % of population Business births, 2018
38.2%
6.9%
4,065
33.3%
3.0%
23,405 Source: Experian, ONS, Land Registry, MHCLG, HESA
DRIVERS OF GROWTH
• Leeds is one of the UK’s key commercial centres, with an office stock of over 20 million sq ft. It is the commercial hub of the Leeds City Region with a diverse economic base and a strong presence in sectors such as financial and professional services, fintech, healthcare and medical technology.
• Leeds City Region incorporates 10 local authority districts, including key locations such as Wakefield, Bradford, Harrogate and York. This area has a population of approaching 3.1 million, which is projected to rise by around 100,000 over the next decade. The total economic output of the Leeds City Region was an estimated £68 billion in 2019 (Experian), which accounts for 57% of the total output for the Yorkshire and the Humber region.
• The city has a growing ‘knowledge’
sector, boosted by the Innovation District, focussed around its leading academic and teaching institutions including the University of Leeds, Leeds Beckett University, Leeds Teaching Hospital Trust and Leeds Arts University. The media sector is now becoming increasingly important, and the arrival of Channel 4 last year should provide a catalyst for further demand.
• Leeds is also home to some of the UK’s premier retail space, including the 120- unit Trinity Leeds, which transformed the city’s retail offer when it opened in 2013, and the Victoria Gate shopping centre, which opened in 2016 and is anchored by John Lewis.
• Rail technology is a thriving sector.
The Institute for High Speed Rail and System Integration (IHSRSI), part of the University of Leeds, will become fully operational in 2021. The region is also home to the University of Huddersfield’s Institute of Railway Research. Although just outside the Leeds City Region boundary, Siemens has announced plans to develop a £6 million rail innovation hub at Goole, complementing its neighbouring rail manufacturing facility.
• The Government’s announcement that the HS2 high speed rail line will go ahead in full is very welcome.
This will deliver a new connection from Leeds city centre to locations including Sheffield, Birmingham and London. The proposed station will be integrated with the existing infrastructure, incorporating access to the city centre and the South Bank area, and acting as a catalyst for further development.
• The line to Leeds is part of the second phase of HS2. This phase is to be reviewed and combined with Northern Powerhouse Rail, the proposed east- west link from Liverpool to Leeds via Bradford, and will be rebranded as ‘High Speed North’. This is an important step, as improvements in connectivity between Leeds and other cities in the Northern Powerhouse will be key to future economic growth.
• Local infrastructure improvements are also important. Current schemes include the Leeds East Orbital Road, which will replace the existing Outer Ring Road, easing congestion but also acting as a catalyst for development.
Completion is scheduled by the end of 2021.
• The city region is also a strategic distribution location and Leeds City Region Enterprise Zone is now a focus for development activity. This 142-hectare area is located at junction 45 of the M1, along the new East Leeds Link Road into Leeds city centre. A simplified planning process applies within the zone, and there is a range of business incentives. The area is home to the key Logic Leeds and Gateway 45 sites and has attracted an impressive range of occupiers including Amazon, FedEx, John Lewis, and Premier Farnell. It is situated within the wider Aire Valley Leeds regeneration area, which contains over 400 hectares of development land.
THE KEY LOGIC LEEDS AND GATEWAY 45 SITES HAVE ATTRACTED AN IMPRESSIVE RANGE OF DISTRIBUTION OCCUPIERS
• Development potential is not confined to Leeds. York, for example, could see significant development over the medium term at the 45-hectare mixed-use York Central regeneration scheme, with the potential to create over a million sq ft of commercial space. It has also been suggested that York is under consideration to become the new home of the House of Lords, if radical proposals to relocate from London were to go ahead. City of York Council is proposing to make the city car-free by 2023, part of its goal for York to become a carbon-neutral city by 2030.
OFFICE MARKET
PRIME RENT
£30.00 PSF
2019 TAKE-UP
1 MILLION SQ FT
DESPITE A SEVERE SHORTAGE OF GRADE A SPACE, THERE IS HUGE POTENTIAL FOR DEVELOPMENT IN THE MEDIUM TERM
Figure 1 Leeds office take-up Source: LOAF, Carter Jonas
1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0
Annual take-up, sq ft
2011 2012
2013 2014
2015 2016
2017 2018
2019 2010
2009
City centre Out of town 5-year average total take-up 10-year average total take-up
Take-Up
• The Leeds office market saw total take-up of just over a million sq ft in 2019, set against the wider UK political and business uncertainty.
This figure was almost identical to 2018, broadly in line with the average over the previous five years, and well ahead of the average over the previous 10 years (870,000 sq ft pa). These trends are illustrated in Figure 1.
• The 2019 figure was boosted by one large deal, the 136,000 sq ft for occupation by Sky Betting & Gaming at 4 Wellington Place, signed in the first half of the year. However, without this deal, take-up would still have been in line with the 10-year average.
• Demand was focused on the city centre, which accounted for over 70% of total lettings in 2019. At 745,000 sq ft, this was the third highest figure in the last decade, 12% over the average for the previous five years, and a third higher than the 10-year average.
• In contrast to the first half of the year, which saw the Sky deal plus a sizeable 71,300 sq ft taken by Link Asset Services, the largest transaction in the second half was only 31,175 sq ft, with Sky taking space at 26 Whitehall Road at a rent of £23.00 psf.
• Another key deal in H2 was Channel 4 taking The Majestic on a 15-year lease, totalling 25,900 sq ft. Although Channel 4 will not take occupation until Q2 2020, it already has significant staff numbers in place in short- term accommodation. Also, consultancy firm BJSS agreed a 30,490 sq ft pre-let at L&G’s 1 Whitehall Quay.
• HMRC / NHS Digital are also close to taking occupancy of their 370,000 sq ft at 7–8 Wellington Place, which will be positive in driving footfall and further lettings at this location with over 4,000 staff due to take up residency.
• The outlook for city centre take-up in 2020 is positive, with some sizeable enquiries up to 100,000+ sq ft, but there remains a severe shortage of immediately available grade A space.
Future development
• Leeds city centre has significant development potential. There is a strong narrative around the South Bank, with Commercial Estates Group (CEG) now on site with the initial
phase of its new Temple district, a 38,000 sq ft speculative office building.
The Temple district will form a major element of the South Bank area, with over a million sq ft of offices, retail, food
& beverage, a hotel, residential and placemaking proposed on the 8.7-acre site.
CEG has planning consent for an office building of 134,612 sq ft, although this will probably require a significant pre-let.
• McLaren Property has now received planning consent for its 330,000 sq ft scheme on Wellington Street, and is hoping to commence construction later this year, although this is also likely to require a significant pre-let.
• At Quarry Hill, Caddick Developments is proposing over 100,000 sq ft of offices plus leisure, residential units, retail and a car park, as well as placemaking at its Soyo scheme, and is already making significant progress.
• MEPC has now received planning consent for the next phase of Wellington Place, which could total over 800,000 sq ft of office space.
• Allied London has submitted a planning application to repurpose the former Alea casino at its mixed-use Leeds Dock scheme as flexible workspace. The project will include a food & beverage element, plus events and leisure space. Leeds City Council is also marketing the international swimming pool site. This is a high-profile gateway site for the west of the city centre, with significant potential for office / mixed use.
• Despite the lack of supply and potential for large-scale mixed-use schemes, developers remain reluctant to commence office space on a speculative basis, and pre-letting is currently the only option for occupiers with large grade A requirements. The lack of quality supply means that landlords may take opportunities to refurbish existing space to grade A standards.
• Some older office stock is being taken out of the market for other uses. For example, Westgate Point has recently been purchased by student accommodation provider YPP (although Weightmans, the current occupier, has an unexpired lease term of circa four years). Also, Maple Grove Developments and Rushbond are moving forward with their redevelopment of Oak House, where the remaining office leases are due to expire imminently.
INDUSTRIAL MARKET
PRIME RENT
£6.75 PSF
WITH LIMITED DEVELOPMENT THE SUPPLY OF QUALITY SPACE WILL REMAIN LIMITED THIS YEAR
• Occupier demand in the industrial and distribution sector remains resilient with a healthy level of requirements. Whilst Leeds take-up was down in 2019 compared with the previous year, 2018 was exceptionally strong, following two significant deals at Logic Leeds. There were only two transactions over 100,000 sq ft in 2019; Torque leasing 215,000 sq ft in Wortley and ImerPlast occupying 115,500 sq ft in Castleford (both in the first half of the year), and take-up was supported by a high level of churn at the smaller end of the market.
• The dearth of big shed deals is largely the result of the highly constrained supply, although wider business uncertainty doubtless played a part. However, some speculative distribution development is under way, for example Total Park (over 250,000 sq ft across seven units), due for completion early this year.
• Some significant schemes did complete during 2019. These include 361,000 sq ft at Logic Leeds, which was pre-let to Premier Farnell in 2018; and 117,500 sq ft at TL1 and TL2, Cross Green Industrial Estate, in addition to circa 220,000 sq ft across the rest of the market.
• Looking to 2020, 472,000 sq ft is due to complete during the year, however 361,000 sq ft of this figure has already been pre-let to Amazon at Logic Leeds in 2018, leaving very little new space available.
• With supply highly constrained, new sites will need to come forward. Gateway 45, located close to junction 45 of the M1, will be a major focus for future industrial and distribution development. This 165-acre site was recently purchased by Peel Logistics Property. The site is also home to the Institute for High Speed Rail and System Integration, being progressed by The University of Leeds, which will be a global leader for research in this area.
• UK logistics has recently purchased 43 acres of development land from Harworth/Evans with a view to bringing forward 850,000 sq ft of industrial and distribution units with construction to commence in Summer 2020.
• The prime industrial rent in Leeds is £6.75 psf (units of over 10,000 sq ft).
Figure 2 Leeds Prime office rents Source: Carter Jonas
35 30 25 20 15 10 5 0
Prime headline rent, £ psf
2015 2016 2017 2018 2019
City centre Out of town
Rents
• The prime city centre headline rent remained at its £30.00 psf level in 2019, with a rent-free period of 18 months typical (assuming a 10-year lease). However, given the lack of immediately available grade A stock, continued healthy demand and several significant requirements, we expect the prime rent to see a marked upward shift this year.
The out of town market
• With occupier preferences shifting to city centre locations, the Leeds out-of-town market has had a quiet year, although it still suits those occupiers who require excellent motorway connections. There were no large transactions at the premier location of Thorpe Park, and take-up reached only 283,000 sq ft, the lowest since 2015, and below the average over the previous 10 years of 315,000 sq ft pa.
• Meanwhile, Wakefield has seen its first significant deal for several years, with Highways England agreeing a 15-year pre-let of 30,000 sq ft at Calder Park. The achieved rent was £23.00 psf, which sets a new benchmark for the city. The developer is Peel, with completion scheduled for early 2021.
Carter Jonas advised Highways England.
• Elsewhere in the Leeds City Region, the York market continues to have a constrained supply, although Palace Capital’s mixed-use Hudson Quarter is under way and making good progress to deliver 35,000 sq ft of office space, with completion scheduled towards the end of this year. Although no deals have yet been signed, there have been strong expressions of interest.
• Take-up in York totalled approximately 70,000 sq ft in 2019. A pre-let of 4,588 sq ft to Knights PLC has just been announced, achieving a new headline rent in York of
£25.00 psf.
RETAIL MARKET
PRIME RENT
£250 PSF (ZONE A)
• The Leeds city centre retail market has held up well, despite slightly lower footfall, particularly over the Christmas period, which has been partly attributed to major roadworks.
• The market has witnessed substantial change over recent years, with the opening of two new shopping centres in the prime pitch where units were occupied relatively quickly. Over the last year, vacancy rates have increased a little, attributed to the departure of some fashion retailers, but unlike many other major UK retail locations, these vacancies are generally not being triggered by CVAs or retailers falling into administration.
• In Leeds Trinity Shopping Centre, multiple store openings were announced in 2019.
These include fashion retailer Realist and Ribble Cycles bike store.
• Outside of the city centre, to the east of Leeds, The Springs retail park has welcomed five new outlets – phone operator EE, The Works craft shop, Shoe Zone, furniture shop Lola Rose Interiors and Caffé Nero. The retail park also saw the opening of Odeon Luxe in 2019. Furthermore, The Range superstore opened in the autumn in the former Toys R Us unit at Birstall Shopping Park, creating 80 jobs and including a café and outdoor garden centre.
• In the leisure market, proposals for the 205-bedroom Victoria Gate Hotel next to the shopping centre were recommended for approval in January 2020. The scheme will provide welcome additional high-quality rooms to the city centre.
• Rents for prime retail pitches in the city centre remain unchanged at £250 psf (zone A) as at the end of 2019.
RENTS AND YIELDS SUMMARY
RENTS YIELDS
PRIME RENT (£ PSF)
CHANGE OVER LAST 12 MONTHS
FORECAST NEXT 12
MONTHS PRIME YIELD CHANGE OVER LAST 12 MONTHS
Office £30.00 5.0%
Industrial £6.75 5.25%
Retail (Zone A) £250 5.25%
Source: Carter Jonas
Figure 3 Leeds – Prime yields Source: Carter Jonas
8.0
7.0
6.0
5.0
4.0
3.0
2.0
Prime yield (%) Office Industrial Retail
2015 2016 2017 2018 2019
2012 2013 2014
COMMERCIAL PROPERTY INVESTMENT TRENDS
2019 TOTAL INVESTMENT
£1.3 BILLION
PRIME
OFFICE YIELD
5.0%
• We have identified investment transactions in Leeds City Region totalling £859 million in the second half of 2019. This was
significantly higher than the H1 total of £402 million, due to two standout deals. Both were purchases in Leeds city centre by Legal
& General, who bought Quarry House from R20 for £243 million; and 7–8 Wellington Place (HMRC and NHS Digital’s pre-let space) from Hermes REIM for £211 million.
These two purchases accounted for 53%
of the H2 investment total. Other
significant transactions in the second half of 2019 included:
• Super G, at Glasshoughton near Castleford, was purchased by Equites Property Fund (a South African REIT) for £30.675 million from Barwood Capital. The net initial yield was 4.6%. The 261,000 sq ft distribution warehouse, completed last year, is occupied by Puma on a 15-year lease.
• 1 City Walk was purchased by Corum Asset Management from Aviva for just over £19 million. Occupiers at this Leeds city centre office building include Harrison Goddard Foote, the Insolvency Service and Jacobs.
• Thornes Farm Business Park, to the east of Leeds city centre, was purchased by Citivale Ltd for £16.35 million from Aberdeen Standard at a net initial yield of 5.75%.
• Photon Park at the Normanton Industrial Estate was purchased by Citicentric on behalf of Adur District Council for £15.1 million at a net initial yield of 5.75%. The mixed office / industrial park is occupied by car auctions company Aston Barclay. This transaction is reflective of the recent trend of Local Authorities targeting acquisitions in underperforming or secondary locations.
• The 2019 transaction total of £1.3 billion was ahead of last year’s £1 billion. With the greater certainty provided by December’s decisive general election, we expect a higher level of prospective purchasers this year and more competition for assets. However, for those buyers seeking good quality assets, the availability of product will remain a key challenge, with a lack of stock across all sectors.
• Figure 3 illustrates the significant yield compression that has occurred in recent years, most notably in the industrial sector, but also for offices. Prime office and industrial yields have remained at keen levels over the last year, at 5.0% and 5.25% respectively. This reflects robust investor demand, limited purchasing opportunities, and the strong occupational story, which will continue during 2020.
WE EXPECT A
HIGHER LEVEL
OF PROSPECTIVE
PURCHASERS THIS
YEAR AND MORE
COMPETITION
FOR ASSETS
© Carter Jonas 2020. The information given in this publication is believed to be correct at the time of going to press. We do not however accept any liability for any decisions taken following this publication. We recommend that professional advice is taken.
Find out more at carterjonas.co.uk/commercial
ABOUT CARTER JONAS
0113 242 5155
9 Bond Court, Leeds LS1 2JZ leeds@carterjonas.co.uk
Carter Jonas LLP is a leading UK property consultancy working across commercial property, residential sales and lettings, rural, planning,
development and national infrastructure. Supported by a national network of 33 offices and 800
property professionals, our commercial team is renowned for their quality of service, expertise and the simply better advice they offer their clients.
Contacts:
Chris Hartnell Associate Partner
0113 203 1079 | chris.hartnell@carterjonas.co.uk
Scott Harkness Head of Commercial
020 7518 3236 | scott.harkness@carterjonas.co.uk
Daniel Francis Head of Research
020 7518 3301 | daniel.francis@carterjonas.co.uk
