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Commercial Property News For Yorkshire - November 2011
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Yorkshire grit payoff
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| Perhaps it is a reflection of the region’s determined spirit, but the commercial property market is apparently ignoring the dire economic warnings and having something of a revival. That has opened the way for higher office rents and a return of new development in central Leeds. Jeff Pearey of Jones Lang LaSalle takes an optimistic view of the situation. “We have seen a significant improvement in occupier activity in the second quarter (which has continued since) with a 331% increase in lettings compared with the first three months and shows that stronger sentiment is finally returning to the market,” he said. According to the Leeds Agents’ Forum there are promising signs that take up this year could top 37,160 sq.metres, well ahead of 2010. The Forum said: “While occupiers remain cautious, the figures show a healthy level of interest, at what is traditionally the quietest three months of the year.” Some of these requirements are of impressive size. The law firm Squire Sanders & Dempsey is seeking 5,574 sq.metres. This illustrates Leeds’ role as a legal and financial centre. The natural reaction in a city where the amount of Grade A space is declining is new development. And so to the action. Planning permission was granted in October 2011 for the redevelopment of a 120,000 sq.ft. landmark building above Leeds City Station. City House will provide Grade A, BREEAM Excellent offices suites of all sizes, meeting/conference facilities and serviced offices. The main contractor is due to be selected and various approvals with Network Rail are progressing to enable a start on site early next year with completion scheduled for mid 2013. Gregory Projects and Marshall have also submitted a planning application for a £30 million office and hotel scheme at Whitehall Plaza, next to the railway station. It will have a 130 bedroom hotel and 4,645 sq.m. of offices. Richard Dunn of letting agent Sanderson Weatherall commented: “There is a shortage of Grade A offices in prime city centre locations and even ahead of the planning application, occupier interest in the scheme has been encouraging.” Adam Cockcroft of joint agent DTZ added that “Leeds remains one of Europe’s top business destinations and still enjoys a healthy demand for high quality offices, despite the economic downturn.”
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Occupiers are optimistic
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| The improved outlook from the property sector is reflected in positive views by business in Yorkshire and Humberside for future growth. A survey by Santander, the Spanish bank that owns a number of British banks, showed that directors of businesses in the region with a turnover of up to £20 million are expecting, on average, to double their annual turnover (109% growth) in the next five years. In the shorter term, businesses are concentrating on survival rather than actively pursuing growth. On the plus side, 40% of the businesses in the region are investing in research and development, which Santander said is the highest of any region in the UK. Santander’s Steve Pateman said: “The country is reliant on these businesses to drive economic recovery and it bodes well that they are confident in their growth potential.” |
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Backed by investment
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| Underpinning the positive view of the office market in the region is the steady flow of investment transactions. In the largest deal for years, a fund managed by the investment manager Orion Capital Managers has bought a 50% stake in 43,663 sq.metres (470,000 sq.ft.) White Rose Office Park for around £130 million from Munroe K. The transaction comes at a time when Munroe K is planning to expand the 27 acre park, which is three miles from Leeds city centre, with a 2,787 sq.metres (30,000 sq.ft.) office building and extended conference facilities. David Aspin of Munroe K said: “The acquisition by Orion underscores my belief in the future of the park and gives us one of the truly forward thinking fund managers to partner, further manage and develop the business park.” There is one small office suite to let at the park, which has a number of blue chip tenants such as HSBC, O2 and the WSP Group.
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InBrief #1
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| A Savills study shows that only two categories of commercial development have recorded growth in September, refurbishment and fit out. These contrast with the decline over 3 successive months for commercial development in both public and private sectors, with public sector offices showing the sharpest contraction. Savills’ Paul Fairhurst said: “While debt availability continues to drag on development activity, refurbishment remains fundable and increasingly popular.” |
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York looks good too
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| What is impressive about the regional market is that there is a healthier situation in other towns and cities. The improvement is not confined to Leeds because there has been plenty of activity in York, such as a 124 bedroom hotel at Layerthorpe for Tiger Developments and four deals at the Stirling Park Industrial Estate, Clifton Moor. The four deals total 3,066 sq.m. (33,000 sq.ft.). DTZ’s Paul Mack said: “Clifton Moor continues to be the location of choice for many businesses and trade counter operators in York and the wider North Yorkshire area.” At York Business Park, Evans of Leeds has sold three office and hybrid business units at Opus Avenue and Novus Avenue for £1.54 million. Richard Flanagan of Lawrence Hannah said: “These deals are another chapter in the success story of York Business Park, which is well located two miles from the city centre.” In the centre, Mott MacDonald has taken space at St Saviour House through DTZ whose Eamon Fox said: “The city’s reputation as the centre for the UK rail industry makes it an attractive destination for professional firms such as Mott MacDonald.” The consultants made the decision after cycling to work was the preferred mode of transport for its staff. At nearby Knaresborough the tea and coffee merchants, Taylor of Harrogate, has leased a 6,968 sq.metres (75,000 sq.ft.) distribution centre on the 22 acre St James Business Park. Roger Quarmby of St James said: “It is one of the final pieces in the jigsaw of our successful business park, which we have been developing for the past 15 years.” He believes that the success of the business park “will help to drive the economic growth of the historic town of Knaresborough.”
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Ripley in Halifax
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| Two transactions in Halifax add to the growing evidence of a more widespread recovery in the property market. Ripley Asset Management has paid a private investor £1.78 million for retail property at 26-30 Southgate let to Sports Direct and Banana Beach Tanning. Michael Hardman of Ripley said: “Halifax town centre is a popular retail destination with a high footfall. There are now signs that both the residential and commercial property markets are beginning to recover, albeit slowly, and we are ready to seize attractive investment opportunities.” Also in Halifax St James Securities has completed the refurbishment of the Grade II listed 372 sq.metres (4,000 sq.ft.) Shaw Lodge House into 10 office suites. Oliver Quarmby of St James said: “We have restored the splendid Shaw Lodge House to its former glory. The refurbishment is the first major piece of work on the path to restoring the mill complex.”
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Inland port for Doncaster
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| The pace is also quickening at Doncaster where there are ambitious plans for new transport links and regeneration. Top of the list is a new £400 million plan to build Britain’s largest inland port and logistics park. This is the result of a deal between Helios Europe, SEGRO and Shepherd Developments for a site at Rossington, near Doncaster. It is designated as an inland port because it will have customs clearance and bonded warehouses in a total scheme of 534,175 sq.metres (5.75 million sq.ft.), all linked by rail and direct motorway access. The key target is for goods from Felixstowe to be shipped inland to the port, which is on Junction 3 of the M18. Mike Hughes of Helios Europe said: “Doncaster is acknowledged as a premier location for logistics in the UK.” Meanwhile, construction by Vinci has started on the joint venture (council/Muse Developments) at Doncaster’s new performance venue with completion due in 2013. The new link road to Junction 3 of the M18, a key part of the inland port, is also taking shape. Muse Developments’ Michael Broadhead said: “The civic and cultural centre is really taking shape.”
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InBrief #2
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| F&C REIT, in conjunction with ESAS Holdings (Turkey) has paid £108 for two shopping centres in Barnsley and Middlesbrough for a blended yield of 8.6%. The Alhambra Shopping Centre, Barnsley is 16,722 sq.metres (180,000 sq.ft.) and the Cleveland Centre, Middlesbrough is 37,160 sq.metres (400,000 sq.ft.) and were bought from Capital and Regional’s Mall Fund. |
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A warning of shortages
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| While the industrial property market in the region has displayed admirable stability, the lack of new development means that shortages are already occurring. That is the message from Mike Baugh of DTZ who said: ”As the market improves and take up of vacant stock continues, we move closer to the situation where there is a shortage of some sizes of units. This is intensified by a shortage of land and a limited number of developers holding back speculative development.” He suggested that the problem in Leeds was for companies seeking units of below 1,394 sq.metres (15,000 sq.ft.) bringing a ”hardening of rents and a reduction in incentives.” Even so, Yorkshire offers a higher proportion of Grade A industrial space than most of the UK. Baugh said: “The window of opportunity for occupiers to secure an attractive deal is closing and they will have to be more organised and forward thinking in their search for new premises.” Nationally, reports Jones Lang LaSalle, occupier demand in the first half for big sheds weakened and this continued in the three months to 30 September. But “investor demand is strong, concentrating on prime stock let to strong covenants on long leases.” Two examples of recent industrial deals come from Knight Frank. It acted for Havells Sylvania who sold a 12,727 sq.metres (137,000 sq.ft.) warehouse in Shipley to Card Factory. At Harley Business Park, Bradford it has let 1,858 sq.metres (20,000 sq.ft.) to Barrett Steel. Another significant industrial transaction in Yorkshire is provided by the bus manufacturer Optare which is amalgamating its three factories in Leeds, Blackburn and Rotherham into one 13,006 sq.metres (140,000 sq.ft.) unit at Sherburn Distribution Park, Sherburn in Elmet. This will be the first new bus assembly plant in the UK for 40 years. Paul Mack of DTZ said: “The latest addition demonstrates the capabilities of the area as a hot spot for manufacturing and distribution in the Yorkshire region. The Sherburn Industrial Estate benefits from a huge power supply which is the key to the manufacturing sector.”
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Taking a shine to Leeds
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| The improved climate for development is likely to lead to the Lumiere scheme on Wellington Street, which was originally slated to be a residential tower, being developed commercially. Ripley Capital and Axa Real Estate Managers have teamed up to acquire the site from Lloyds Banking Group. The property was designated to be Europe’s tallest residential tower but is now in the hands of the Receiver, Deloitte. The new plans calls for a 1,1148 sq.metres scheme of offices and shops on the ground floor. Meanwhile, Legal & General, advised by Jones Lang LaSalle, has paid Danmerc £14.38 million for the 4,755 sq.metres office property at 1 Whitehall Quay, an initial yield of 7.88%. The largest investment deal, however, was RREEF buying the 9,011 sq.metres Lateral office building on City Walk, Leeds for £24 million from DTZ acting as the LPA Receiver. The property is let to the Department of Communities & Local Government. In another major deal, a prime Leeds shopping arcade that boasts some of the UK’s top retailers has been put on the market by the Bank of Ireland Private Banking. The 20,903 sq.metres Grade II listed Victoria Quarter has been given a price tag of £135 million for a yield of 5%, reflecting the quality of the high end occupiers such as Harvey Nichols, Wolford and L’Occitane. The bank paid £126 million for the arcade in 2006 and there have been off market efforts to sell it for some time.
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InBrief #3
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| Knight Frank predicts that Leeds office rents will increase by 5% to £269 a sq.metre (£25 a sq.ft.) by the year’s end. The rise is due to a growing shortage of Grade A space due to increasing demand.
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Branson
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| The performance of the Yorkshire property market this year has been heartening for everybody rooting for the improvement in the UK economy. There has been no banging of the drum as the Leeds office market picks up, investment deals go through and industrial property has moved toward a shortage of some sized units. When we hear the familiar tale of woe that the UK does not make anything now, Optare, the bus company, provides an example of the success of manufacturing with a new factory in north Yorkshire. As much as anything, the message is that across the region companies are bucking the recession and getting on with expansion. There are numerous examples of historic properties being refurbished for new uses and sizeable schemes in major cities are being dusted off for future activation. The mood is generally more positive than in some other parts of the UK and the hope must be that this is maintained in the face of a tough economic climate. Otherwise, how do you interpret the plans for the regeneration of Doncaster and the creation of the country’s largest inland port costing £400 million? That is not the stuff of recession. Nor is the decision to market the top of the market Victoria Quarter in Leeds with its raft of prime retailers and flagship Harvey Nichols store.
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