Commercial
edge
Leeds & 2014 North Yorkshire
ECONOMIC OVERVIEW The population of Yorkshire & Humberside totals 5.3 million and the county extends to 5,953 sq miles. There are great economic, social & population variations throughout the region, due in part to its size, along with notable divides between the North/South and arguably the East/West. The county’s labour market clearly illustrates strong disparities with York ranking sixth in the 2013 Centre for Cities report of urban areas with the highest employment rate at 75.9%, the maximum annual change of the top ten cities. However, at the other extreme, the Yorkshire & Humberside region suffers from the third highest unemployment rate (8.9%) of the UK behind the North East & West Midlands. Although the overall regional GVA is below the national average, the region’s hot spots have witnessed noticeable growth with a 3.2% increase in North Yorkshire
between 2010-2011, above the UK average and the highest in the region, with positive statistics also recorded during the same period in Leeds (+1.2%) and York (+0.9%).
DEMOGRAPHIC Population projections estimate Leeds will grow by just under 32% to 991,700 by 2031. This figure is well above the comparable UK average of 15.3%. Alongside Leeds, York is also predicted to grow faster than the national average with a projected increase of just below 20%, with forecasts for Harrogate district following the national trend more closely at 14%. York not only benefits from a very low percentage of the population having no formal qualifications (6.8%), it also ranks highly on proportion of working age people with highlevel qualifications with over 40% of the population having gained a qualification of NVQ4 level or above.
FIGURE 1
1,000,000
POPULATION FORECASTS
800,000 600,000
2010 2031
400,000 200,000 0
© Carter Jonas 2014
Source: Experian
LEEDS
YORK
HARROGATE
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EMPLOYMENT
HARROGATE
LEEDS
Although continuing public sector cuts will inevitably affect the region’s employment market, Leeds should be relatively well insulated due to its proportionately high levels of private sector employment. Statistics illustrate there are three private sector employees to every public sector employee within the city. Leeds also benefits from a diverse employment market with a healthy range of companies and a fast growing finance and business services sector. The pie charts illustrate the diversity of the city’s employment which will ensure its viability and prosperity over the medium-term.
FIGURE 2 LEEDS EMPLOYMENT BY SECTOR (%) 2013 4.2
4.2
3.3
YORK
The York employment market benefits from an above average number of people classified as working in Higher Professional Occupations with 5.6% (7,551) of the workforce employed within this sector. York also benefits from a high level of employment (75.9%) and is ranked sixth in the 2013 UK Centre for Cities Report of urban areas with the highest employment rate. It is also worth noting that the city had the highest annual change within the top ten UK cities.
INFRASTRUCTURE IMPROVEMENTS
7 28.2
7.1
8.1 14.2
23.7
Finance/Business Serv Public Administration Wholesale/Retail Accom/Food Serv Construction
Manufacturing Transport/Storage Info & Communications Other
FIGURE 3 LEEDS PROJECTED EMPLOYMENT BY SECTOR (%) 2023 4.6
4.2
3.2
5.5 6.9
30.3
8.2 13.7 Finance/Business Serv Public Administration Wholesale/Retail Accom/Food Serv Construction
© Carter Jonas 2014
The Harrogate employment market is dominated by smaller companies with 86% of businesses employing between 1-10 employees. Harrogate also benefits from a relatively low proportion of the workforce being employed in the public sector, thus lessening the effects of the continuing public sector cuts.
23.4 Manufacturing Transport/Storage Info & Communications Other
The eastern leg of Phase Two of HS2 is planned to extend high speed lines north-east from Birmingham to Leeds, with intermediate stations in the East Midlands and Sheffield and a new station at Leeds serving the city centre. The new station will potentially be located alongside the South Bank area of the city centre and would be joined to the existing station via a dedicated pedestrian link. The scheme will create fast links to Sheffield, East Midlands and Birmingham with journey times of less than 20 minutes, making daily commuting easy and integrating the economies. Outline plans have also been approved for the £250m Leeds Trolleybus system linking the city centre to park-and-ride sites in Holt Park and Bodington Hall in the north and Stourton to the south. The eight mile link is forecast to create around 4,000 jobs and increase economic output by 3% (equivalent to a £176 million annual boost). Plans are in place at Leeds Station to construct a new southern entrance which will create greater connectivity between the North & South of the city. The proposals will improve connectivity to Granary Wharf and the Holbeck Village area of Leeds.
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LEEDS IN NUMBERS...
LEEDS OFFICE MARKET
600,000
AVAILABILITY
sq ft
office take-up in Leeds for 2013, its highest level for 10 years
Total office supply stood at circa 1.15 million sq ft at the end of Q3 2013, with Grade A availability at just 250,000 sq ft. Availability is predicted to fall to 1.1 million sq ft by early 2014.
£25
TAKE-UP
per sq ft - prime office rental level in Leeds
41,450
number of additional office based jobs forecast in the region by 2031
170,000
sq ft
pre-let by Leeds City Council at Merion House - the largest transaction to complete in 2013
FIGURE 4 KEY 2013 LEEDS OFFICE TRANSACTIONS
Take-up totalled 538,000 sq ft to Q3 2013 with the pre-let of 170,000 sq ft by Leeds City Council at Merrion House, the largest transaction to complete during the year. Another notable transaction was the acquisition of 76,412 sq ft at Broadgate to Yorkshire Building Society. In addition to their pre-let of 61,249 sq ft at Sovereign House, KPMG have confirmed their commitment to Leeds by taking the last remaining 28,500 sq ft of space at Broadgate taking further Grade A space out of the market. Lowell Group have acquired 81,911 sq ft at Leeds Valley Business Park, this is the largest transaction to complete in the out-of-
OCCUPIER
LOACTION
Leeds City Council
Merrion House
SQ FT
Yorkshire Building Society
Broadgate
76,412
Dart Group
The Mint
73,099
MPS
Victoria Place, Sovereign Street
63,000
PlusNet
Marlborough Street
32,000
170,000
town for more than a decade. Figure 4 details the key office transactions in 2013 and reaffirms Leeds as a principal regional office market in Yorkshire. 2013 take-up exceeded 600,000 sq ft, its highest level for more than a decade, which is an encouraging sign for the city. 2013 letting activity highlights the need for speculative office development. 2014 is expected to prove a critical point, where the lack of speculative development begins to stifle the market’s equilibrium and rental growth is restricted due to a lack of choice of good quality buildings. RENTAL LEVELS
Prime office rents in Leeds stand at £25.00 per sq ft, a 4% increase from its £24.00 per sq ft level in 2012. Upward pressure on rental values and more limited incentive packages are expected during 2014, given the acutely limited availability of good quality stock and increasing demand levels recently reported in the city. The latest European Cities Monitor, published by the Centre for Cities Outlook 2013, reported that Leeds has maintained its pole position as the city in Europe with the best value for money office space.
FIGURE 5 ANNUAL LEEDS OFFICE TAKE-UP
sq ft (000’s)
Leeds has maintained its pole position as the city in Europe with the best value for money office space.
700 600 500 400 300 200 100 0
© Carter Jonas 2014
2008
2009
2010
2011
2012
2013
DEVELOPMENT PIPELINE Two major pre-lets developments are currently under construction in Leeds; at Sovereign House (61,249 sq ft for KPMG) & at No.10 Wellington Place (15,157 sq ft for Shulmans). Oakapple Commercial recently submitted plans for a 100,000 sq ft office scheme on Sweet Street, which forms part of the Holbeck Urban Village Regeneration area. In addition, Town Centre Securities has gained planning consent for a 600,000 sq ft mixed-use development of Whitehall Riverside in the heart of the city’s West End. The office component of the scheme totals 375,000 sq ft within three, eight storey buildings. However, no speculative development is currently planned in the prime core market within the short-term and this absence will restrain the potential rental growth prospects for the city if not considered as a matter of urgency. This must be addressed to create an attractive environment and encourage increased investment.
that the troubled Lumier project in Leeds city centre is to be reborn through new owners, Local businessmen Steve Parkin and Gurchait Chima who have beaten six bidders to exchange for around £5 million. Rebranded as Central Square, the scheme which was initially proposed to consist of Western Europe’s tallest residential tower will now be home to 170,000-210,000 sq ft of commercial space.
tier market based on a limited city centre office supply and a proliferation of space out-of-town.
Leeds continues to grow as a regional centre with new schemes such as Trinity Shopping Centre, which comprises circa 1 million sq ft of shopping and leisure space and hopes to attract 23 million visitors a year, and Victoria Place, anchored by John Lewis has recently received planning permission and will be developed by Hammerson with Phase 1 expected to commence this year.
HARROGATE
YORK
A total of £4.4 billion has been invested in commercial property developments in Leeds since 2003 with a further £5.9 billion of schemes either under construction or in the pipeline. Recent news has also seen the announcement
Hiscox, the FTSE 250 insurance company, is to move to a new office during Autumn 2014, creating 300 jobs with the option to extend the premises to include a further 200 jobs at a later date. The City of York Council has forecast that the move, along with the proposed neighbouring 262 bedroom hotel scheme and accompanying supply chain impacts will add £26.8m to York’s GVA by 2026. Unlike Leeds and Harrogate, York does not appear to have a shortage of existing office space although does have a two
Smaller office transactions have dominated the Harrogate market and a 12% decline in available office space was recorded during 2013, reflecting the proliferation of smaller businesses within the market. Evidence suggests that the majority of office transactions are of c. 500-1,000 sq ft. The demand from small occupiers has driven the success of Windsor House where voids have decreased from 50% to 25% over the last 18 months. Larger transactions are seen as being in excess of 2,500-5,000 sq ft, so Harrogate whilst successful, does not directly compete with Leeds. However, there are substantial businesses present in the town that contniue to perform well such as Vp plc and Bettys and Taylors Group.
EMPLOYMENT FORECASTS Office employment forecasts sourced from Experian predict that 41,450 new office based jobs will be created in the region by 2031 with the highest percentage of growth anticipated in Leeds (20.5%). This growth will require over 4.8 million sq ft of new office accommodation across Yorkshire & Humberside, with Leeds accounting for just under 4.3 million sq ft using a net office density of 117 sq ft per employee from the recently published BCO office occupation density survey.
FIGURE 6 PRIME HEADLINE LEEDS OFFICE RENTS
The purchase of the Chocolate Works, the site of the former Terry’s factory, extending to 14 acres and including 236,000 sq ft of existing accommodation by Henry Boot and David Wilson Homes will see this iconic building brought back into use creating a great boost to the city.
£ per sq ft 26
25
24
With current Grade A availability at 250,000 sq ft following buoyant letting activity in 2013, the question must be raised if Leeds is able meet potential demand into the future?
23
22 2010
2011
2012
2013
FIGURE 7 PROJECTED PERCENTAGE INCREASE IN OFFICE EMPLOYMENT FROM CURRENT DAY TO 2031
INVESTMENT MARKET 25%
Prime office yields have remained stable at 6.5%, slightly above the UK office average of 6.4%. This higher rate is due to a lack of evidence across the market rather than a notable shift in demand for office product in Leeds.
20%
15%
Source: Experian
10%
5%
0% LEEDS
HARROGATE
Average Grade A take-up has totalled circa 250,000sq ft per annum and extrapolating this figure to 2031, 4.5 million sq ft should be deliverable and is crucial for the city’s future prosperity. However, the supply of new build accommodation is extremely cyclical and now very limited. Whilst recent pre-letting activity is an extremely positive indication to the prosperity of the market and one of a very small number witnessed in any UK regional office market, Leeds remains notably behind the curve in supply terms.
NORTH YORKS
FIGURE 8P
YORK
The largest investment deal in 2013 was M&G Property Portfolio’s £29 million purchase of Toronto Square from Highcross. The 88,200 sq ft office development is currently let to 14 tenants and represents a yield of 7.0%. Other notable deals include Cordea Savills £12.3 million purchase of the 68,234 sq ft development, 9 Bond Court. The development is multi-let with a yield of 8.7%.
KEY 2013 LEEDS OFFICE INVESTMENT TRANSACTIONS
ADDRESS
PURCHASER
PRIZE (£M)
YIELD (%)
Toronto Square 1 Sovereign Square
M&G Property Portfolio
29.0
7.0
British Steel Pension Fund
25.2
6.2
9 Bond Court
Cordea Savills
12.3
8.7
13-14 South Parade
Welbeck Estates Company
5.1
6.7
COMMENT KPMG prelet
FORECAST TOWN
FACTORS Leeds will continue to dominate the region from a commercial, retail & leisure perspective
The Tour de France will create a major focus on the region and is forecast to bring in excess of £100m in economic benefits. In our opinion, the occupier and investors perception of the prime core will have to expand significantly or more likely ‘new areas’ will emerge and develop in order to meet the significant new demand that Leeds needs to embrace and enhance its reputation as the largest city for business and finance outside London.
LEEDS
Areas to watch include the Arena Quarter on the basis of the new Arena
and the new pre-letting to LCC. In addition, Holbeck Village, the potential of HS2 station and the new southern entrance are all expected to contribute to high levels of capital growth in 2014
The potential for a medical hub of national importance Potential rental growth for an undersupplied office sector Demand for smaller units in the office sector & industrial units up to HARROGATE
3,000 sq ft
Increased demand for prime retail space Residential demand will continue
YORK
NORTH YORKSHIRE REGION
Residential property inside the walls of the city remains in great demand Potential of office to residential conversions Prime retail will remain in strong demand T he Tour de France will create a major focus on the region and is forecast to bring in excess of £100m in economic benefits. York, Harrogate, Leeds and Sheffield should also reap the benefit from the significant event. T ourism is an increasingly important investment provider to the region. There are already 216 million visits to Yorkshire each year, creating jobs for almost 250,000 people and making tourism in the region worth £7bn each year.
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TRANSACTIONS COMPLETED IN YORKSHIRE BY CARTER JONAS IN 2013
1
2 Place, Leeds 1 Victoria
63,000 sq ft prime Grade A offices acquired on behalf of MPS
EDINBURGH
Harrogate 2 Magnet,
Investment acquired for a private client
and Taylors, Harrogate 3 Bettys
3
Acquisition and development advice relating to a 73,500 sq ft industrial unit
KENDAL
"
REPORT COMPILED BY:
BOROUGHBRIDGE
" HARROGATE "
" YORK
Catherine Penman, Head of Research 01604 608203
[email protected]
LEEDS
"
Lee Layton, Research Analyst 01604 608212
[email protected]
" NORTH WALES
"
SHREWSBURY
"
"
NORTHAMPTON
"
CAMBRIDGE
"
"
"
" "
BATH " WELLS
David Aspland, Partner 0113 203 1064
[email protected]
PETERBOROUGH
" MARLBOROUGH "
"
SUFFOLK
OXFORD "
NEWBURY
" "
LONDON
BASINGSTOKE
WINCHESTER "
COMMERCIAL CENTRES
John Webster, Partner 0113 203 1063
[email protected]
0113 242 5155
[email protected] Carlton Tower, 34 St Pauls Street, Leeds LS1 2QB
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ABOUT CARTER JONAS Carter Jonas commercial has dedicated, specialist teams in six major locations throughout England offering strategic and consultancy advice in the key commercial sectors of Landlord Services, Tenant Services, Agency, Business, Science and Industrial Developments, Valuations, Investment and Asset Management, Planning and Development. Carter Jonas is therefore well placed to offer regional and national advice on all matters relating to commercial property to both corporate and private clients.
The information set out in this document is provided for guidance purposes. We recommend that the advice of an experienced, qualified, property consultant is sought prior to exchanging contracts or making any irreversible strategic lease renewal, rent review or relocation decisions. The contents of this document are protected by copyright and should not, in whole or part, be published or otherwise reproduced, without the prior written approval of Carter Jonas LLP.
© Carter Jonas 2014
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