LSH: flight to quality dominates in and out of town

After a busy year in the Leeds market, landlords with older offices are increasingly challenged, according to Lambert Smith Hampton’s Regional Offices 2023 Report.

In line with the post-Q3 take-up statistics released by the Leeds Office Agents Forum, the central Leeds market is buoyant, certainly in comparison to most of its regional counterparts.

Take-up to Q3 was 35% up on the 2022 figure, suggesting that the year’s total should approach 690,000 sq ft, around 6% above the annual average.

However, the firm said, this is a figure skewed somewhat by the whopping 124,400 sq ft letting to Lloyds Banking Group at 11 & 12 Wellington Place, the largest deal on record in the local market’s history.

Elsewhere, deals of above 20,000 sq ft have been few and far between, with just Irwin Mitchell’s 27,470 sq ft deal at 4 Wellington Place and HM Courts & Tribunal Service taking around 26,000 sq ft. Deals below 5,000 sq ft continued to dominate, accounting for 73% of deals, with the 5,000 sq ft to 20,000 sq ft also busy.

Prime rents in the city have moved onto £37 per sq ft this year, through Azets’ deal at 12 King Street, a mark LSH expects to see pushed up further.

The report, compiled by Leeds office head Richard Corby and surveyor Matt Procter, said: “Space currently under offer is rumoured to be set to achieve £38 per sq ft before the end of the year, while rents are projected to move on to £41 per sq ft in 2024 as the newly delivered space lets up.

“Beyond this, prime rents have the potential to hit £45 per sq ft, albeit much depends on the delivery of best-in-class product at Wellington Plaza.

“The picture contrasts heavily with lower quality properties that continue to linger on the market. Here, landlords are maintaining or even reducing rents and offering substantial rent-free periods to attract tenants. Amid such a focus on quality, this shift in demand has left landlords of poorer quality space in an increasingly challenging position.”

The preponderance of small deals was even more pronounced in the out of town market, which to date has seen only four deals above 10,000 sq ft and none above 20,000 sq ft.

Take-up out of town is forecast to come in at around 30% lower than the 10-year average. However, said LSH, “there are a number of larger active requirements in the market which are slow[1]moving but should crystalise during 2024”.

As with the city centre market, occupiers are demanding quality space, and although 644,000 sq ft is currently available, just 20% of that is classed as grade A.

Of this, the 40,000 sq ft 2 Savannah Way at Leeds Valley Park and a quality refurbishment at 3 White Rose Office Park are picked out as contenders, while Munroe K’s plans for a 145,000 sq ft office campus at White Rose, close to the incoming railway station, could raise the bar.

The full report is available online.