Leeds City Region

LEEDS CITY REGION SPRING 2020 OUTLOOK SUMMARY DRIVERS OF GROWTH • Leeds city centre saw strong office take-up in 2019, set against the broader • Leeds is one of the UK’s key backdrop of political and business commercial centres, with an office uncertainty. The city’s economy will stock of over 20 million sq ft. It is be boosted this year by the arrival of the commercial hub of the Leeds significant, high-profile occupiers such as City Region with a diverse economic • The Government’s announcement Channel 4, HMRC, NHS Digital and Sky. base and a strong presence in sectors that the HS2 high speed rail line will such as financial and professional KEY ECONOMIC AND BUSINESS STATISTICS • The severe shortage of grade A city go ahead in full is very welcome. services, fintech, healthcare and Source: Experian, ONS, Land Registry, MHCLG, HESA This will deliver a new connection centre office space is constraining medical technology. take-up, but developers remain reluctant from Leeds city centre to locations YORKS & • Leeds City Region incorporates 10 including Sheffield, Birmingham LEEDS to commence large schemes on a HUMBS local authority districts, including key and London. The proposed station speculative basis. With several sizeable locations such as Wakefield, Bradford, will be integrated with the existing Growth – next 10 years enquiries in the market we expect Harrogate and York. This area has a infrastructure, incorporating access Economic growth 19.6% 16.1% healthy take-up in 2020, with further Employment growth population of approaching 3.1 million, to the city centre and the South Bank 5.2% 2.0% Population growth 4.8% 3.0% pre-letting activity and more which is projected to rise by around area, and acting as a catalyst for refurbishments of existing buildings to 100,000 over the next decade. The further development. grade A standard. total economic output of the Leeds Earnings and affordability • The line to Leeds is part of the second Average house price City Region was an estimated £68 £190,753 £168,382 • Given the lack of immediately available phase of HS2. This phase is to be Average house price growth, 2019 4.8% 3.9% billion in 2019 (Experian), which grade A office stock, we anticipate Leeds reviewed and combined with Northern Average house price to incomes 6.8 6.2 accounts for 57% of the total output for prime rents to increase to £34.00 psf Powerhouse Rail, the proposed east- the Yorkshire and the Humber region. west link from Liverpool to Leeds by the end of this year from the current Prosperity and productivity via Bradford, and will be rebranded benchmark of £30.00 psf. Out-of-town • The city has a growing ‘knowledge’ Average weekly earnings £534 £515 as ‘High Speed North’. This is an Unemployment rate (ILO) rents will also face upward pressure sector, boosted by the Innovation 4.4% 4.5% District, focussed around its leading important step, as improvements in GVA per worker 29,347 21,589 from the established £24.00 psf at academic and teaching institutions connectivity between Leeds and other Thorpe Park. including the University of Leeds, cities in the Northern Powerhouse will Skills and Innovation • Industrial occupier demand remains Leeds Beckett University, Leeds be key to future economic growth. % NVQ4 or above 38.2% 33.3% Students as % of population 6.9% 3.0% resilient. The low number of big shed Teaching Hospital Trust and Leeds Arts • Local infrastructure improvements Business births, 2018 4,065 23,405 University. The media sector is now deals in 2019 was largely the result of are also important. Current schemes becoming increasingly important, and highly constrained supply, although include the Leeds East Orbital Road, the arrival of Channel 4 last year should wider business uncertainty is playing a which will replace the existing Outer provide a catalyst for further demand. part. In the medium term, supply should Ring Road, easing congestion but also be addressed by new sites such as • Leeds is also home to some of the UK’s acting as a catalyst for development. Gateway 45 coming forward. premier retail space, including the 120- Completion is scheduled by the end unit Trinity Leeds, which transformed of 2021. • Commercial property investment in the the city’s retail offer when it opened in • The city region is also a strategic THE KEY LOGIC LEEDS AND GATEWAY 45 Leeds City Region totalled £1.3 billion 2013, and the Victoria Gate shopping distribution location and Leeds City SITES HAVE ATTRACTED AN IMPRESSIVE centre, which opened in 2016 and is in 2019, up on 2018. With the greater Region Enterprise Zone is now a RANGE OF DISTRIBUTION OCCUPIERS anchored by John Lewis. certainty provided by December’s focus for development activity. This decisive general election, we expect a • Rail technology is a thriving sector. 142-hectare area is located at junction higher level of prospective purchasers The Institute for High Speed Rail and 45 of the M1, along the new East Leeds • Development potential is not confined this year and more competition for System Integration (IHSRSI), part of Link Road into Leeds city centre. A to Leeds. York, for example, could see assets. However, for those buyers seeking the University of Leeds, will become simplified planning process applies significant development over the medium good quality assets, the availability of fully operational in 2021. The region within the zone, and there is a range term at the 45-hectare mixed-use York Central product will remain a key challenge is also home to the University of of business incentives. The area is regeneration scheme, with the potential to across all sectors. Huddersfield’s Institute of Railway home to the key Logic Leeds and create over a million sq ft of commercial Research. Although just outside the Gateway 45 sites and has attracted space. It has also been suggested that York is • Prime office and industrial yields should Leeds City Region boundary, Siemens an impressive range of occupiers under consideration to become the new home remain at their current keen levels of has announced plans to develop a £6 including Amazon, FedEx, John Lewis, of the House of Lords, if radical proposals to 5.0% and 5.25% respectively in 2020. million rail innovation hub at Goole, and Premier Farnell. It is situated relocate from London were to go ahead. City complementing its neighbouring rail within the wider Aire Valley Leeds of York Council is proposing to make the city manufacturing facility. regeneration area, which contains over car-free by 2023, part of its goal for York to 400 hectares of development land. become a carbon-neutral city by 2030.

2 carterjonas.co.uk 3 Take-Up phase of its new Temple district, a Figure 1 Leeds office take-up OFFICE 38,000 sq ft speculative office building. Source: LOAF, Carter Jonas • The Leeds office market saw total take-up of The Temple district will form a major City centre Out of town MARKET 5-year average total take-up just over a million sq ft in 2019, set against the element of the South Bank area, with Annual take-up, sq ft 10-year average total take-up wider UK political and business uncertainty. over a million sq ft of offices, retail, food 1,400,000 This figure was almost identical to 2018, & beverage, a hotel, residential and broadly in line with the average over the placemaking proposed on the 8.7-acre site. previous five years, and well ahead of CEG has planning consent for an office 1,200,000 the average over the previous 10 years building of 134,612 sq ft, although this will

(870,000 sq ft pa). These trends are probably require a significant pre-let. 1,000,000 illustrated in Figure 1. • McLaren Property has now received • The 2019 figure was boosted by one large planning consent for its 330,000 sq ft 800,000 PRIME RENT deal, the 136,000 sq ft for occupation by scheme on Wellington Street, and is Sky Betting & Gaming at 4 Wellington Place, hoping to commence construction later £30.00 PSF 600,000 signed in the first half of the year. However, this year, although this is also likely to without this deal, take-up would still have require a significant pre-let. been in line with the 10-year average. 400,000 2019 TAKE-UP • At Quarry Hill, Caddick Developments is 1 MILLION • Demand was focused on the city centre, proposing over 100,000 sq ft of offices SQ FT which accounted for over 70% of total lettings plus leisure, residential units, retail and 200,000 in 2019. At 745,000 sq ft, this was the third a car park, as well as placemaking at its

highest figure in the last decade, 12% over the Soyo scheme, and is already making 0 average for the previous five years, and a third significant progress. 2011 higher than the 10-year average. 2009 2010 2012 2013 2014 2015 2016 2017 2018 2019 • MEPC has now received planning consent • In contrast to the first half of the year, for the next phase of Wellington Place, which saw the Sky deal plus a sizeable which could total over 800,000 sq ft of DESPITE A SEVERE 71,300 sq ft taken by Link Asset Services, the office space. largest transaction in the second half was SHORTAGE OF • Allied London has submitted a planning only 31,175 sq ft, with Sky taking space at 26 GRADE A SPACE, application to repurpose the former THERE IS HUGE Whitehall Road at a rent of £23.00 psf. POTENTIAL FOR Alea casino at its mixed-use Leeds Dock DEVELOPMENT IN • Another key deal in H2 was Channel 4 taking scheme as flexible workspace. The project THE MEDIUM TERM The Majestic on a 15-year lease, totalling will include a food & beverage element, 25,900 sq ft. Although Channel 4 will not plus events and leisure space. Leeds City take occupation until Q2 2020, it already has Council is also marketing the international significant staff numbers in place in short- swimming pool site. This is a high-profile term accommodation. Also, consultancy firm gateway site for the west of the city centre, BJSS agreed a 30,490 sq ft pre-let at L&G’s 1 with significant potential for office / Whitehall Quay. mixed use.

• HMRC / NHS Digital are also close to • Despite the lack of supply and potential for taking occupancy of their 370,000 sq ft at large-scale mixed-use schemes, developers 7–8 Wellington Place, which will be positive in remain reluctant to commence office space driving footfall and further lettings at on a speculative basis, and pre-letting is this location with over 4,000 staff due to take currently the only option for occupiers up residency. with large grade A requirements. The lack of quality supply means that landlords may • The outlook for city centre take-up in 2020 take opportunities to refurbish existing is positive, with some sizeable enquiries up space to grade A standards. to 100,000+ sq ft, but there remains a severe shortage of immediately available • Some older office stock is being taken grade A space. out of the market for other uses. For example, Westgate Point has recently been purchased by student accommodation Future development provider YPP (although Weightmans, the current occupier, has an unexpired lease • Leeds city centre has significant development term of circa four years). Also, Maple Grove potential. There is a strong narrative around Developments and Rushbond are moving the South Bank, with Commercial Estates forward with their redevelopment of Oak Group (CEG) now on site with the initial House, where the remaining office leases are due to expire imminently.

4 carterjonas.co.uk 5 • Occupier demand in the industrial and INDUSTRIAL distribution sector remains resilient with a healthy level of requirements. Whilst Leeds MARKET 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 PRIME RENT the market. • The dearth of big shed deals is largely the £6.75 PSF 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. WITH LIMITED DEVELOPMENT THE • Some significant schemes did complete during SUPPLY OF QUALITY 2019. These include 361,000 sq ft at Logic SPACE WILL REMAIN Leeds, which was pre-let to Premier Farnell in Rents The out of town market LIMITED THIS YEAR 2018; and 117,500 sq ft at TL1 and TL2, Cross Green Industrial Estate, in addition to circa • The prime city centre headline rent • With occupier preferences shifting to city 220,000 sq ft across the rest of the market. remained at its £30.00 psf level in 2019, centre locations, the Leeds out-of-town with a rent-free period of 18 months typical market has had a quiet year, although it still • Looking to 2020, 472,000 sq ft is due to (assuming a 10-year lease). However, given suits those occupiers who require excellent complete during the year, however 361,000 the lack of immediately available grade motorway connections. There were no large sq ft of this figure has already been pre-let to A stock, continued healthy demand and transactions at the premier location of Thorpe Amazon at Logic Leeds in 2018, leaving very several significant requirements, we expect Park, and take-up reached only 283,000 sq ft, little new space available. the prime rent to see a marked upward shift the lowest since 2015, and below the average • With supply highly constrained, new sites will this year. over the previous 10 years of 315,000 sq ft pa. need to come forward. Gateway 45, located • Meanwhile, Wakefield has seen its first close to junction 45 of the M1, will be a major significant deal for several years, with focus for future industrial and distribution Figure 2 Leeds Prime office rents Highways England agreeing a 15-year pre-let development. This 165-acre site was recently Source: Carter Jonas of 30,000 sq ft at Calder Park. The achieved purchased by Peel Logistics Property. The site City centre rent was £23.00 psf, which sets a new is also home to the Institute for High Speed Prime headline rent, £ psf Out of town benchmark for the city. The developer is Peel, Rail and System Integration, being progressed 35 with completion scheduled for early 2021. by The University of Leeds, which will be a Carter Jonas advised Highways England. global leader for research in this area.

30 • Elsewhere in the Leeds City Region, the • UK logistics has recently purchased 43 acres York market continues to have a constrained of development land from Harworth/Evans 25 supply, although Palace Capital’s mixed-use with a view to bringing forward 850,000 sq Hudson Quarter is under way and making ft of industrial and distribution units with good progress to deliver 35,000 sq ft of office construction to commence in Summer 2020. 20 space, with completion scheduled towards • The prime industrial rent in Leeds is £6.75 psf the end of this year. Although no deals have (units of over 10,000 sq ft). 15 yet been signed, there have been strong expressions of interest.

10 • Take-up in York totalled approximately 70,000 sq ft in 2019. A pre-let of 4,588 sq 5 ft to Knights PLC has just been announced, achieving a new headline rent in York of £25.00 psf. 0 2015 2016 2017 2018 2019

6 carterjonas.co.uk 7 • The Leeds city centre retail market has RETAIL held up well, despite slightly lower footfall, particularly over the Christmas period, MARKET 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 PRIME RENT unlike many other major UK retail locations, these vacancies are generally not being £250 PSF triggered by CVAs or retailers falling (ZONE A) 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.

8 carterjonas.co.uk 9 • We have identified investment transactions • The 2019 transaction total of £1.3 billion • Figure 3 illustrates the significant yield COMMERCIAL in Leeds City Region totalling £859 million was ahead of last year’s £1 billion. With the compression that has occurred in recent years, PROPERTY in the second half of 2019. This was greater certainty provided by December’s most notably in the industrial sector, but also significantly higher than the H1 total of £402 decisive general election, we expect a higher for offices. Prime office and industrial yields INVESTMENT million, due to two standout deals. Both level of prospective purchasers this year and have remained at keen levels over the last year, were purchases in Leeds city centre by Legal more competition for assets. However, for at 5.0% and 5.25% respectively. This reflects TRENDS & General, who bought Quarry House from those buyers seeking good quality assets, robust investor demand, limited purchasing R20 for £243 million; and 7–8 Wellington the availability of product will remain a key opportunities, and the strong occupational Place (HMRC and NHS Digital’s pre-let challenge, with a lack of stock across all sectors. story, which will continue during 2020. space) from Hermes REIM for £211 million. These two purchases accounted for 53% 2019 TOTAL of the H2 investment total. Other INVESTMENT significant transactions in the second half of £1.3 BILLION 2019 included: RENTS AND YIELDS SUMMARY • Super G, at Glasshoughton near Source: Carter Jonas PRIME Castleford, was purchased by Equites Property Fund (a South African REIT) OFFICE YIELD for £30.675 million from Barwood RENTS YIELDS 5.0% Capital. The net initial yield was 4.6%. The 261,000 sq ft distribution PRIME CHANGE FORECAST CHANGE warehouse, completed last year, is RENT OVER LAST NEXT 12 PRIME YIELD OVER LAST (£ PSF) 12 MONTHS MONTHS 12 MONTHS occupied by Puma on a 15-year lease.

• 1 City Walk was purchased by Corum Office £30.00 5.0% Asset Management from Aviva for just over £19 million. Occupiers at this Leeds city centre office building Industrial £6.75 5.25% include Harrison Goddard Foote, the Insolvency Service and Jacobs. Retail (Zone A) £250 5.25% • Thornes Farm Business Park, to WE EXPECT A the east of Leeds city centre, was HIGHER LEVEL OF PROSPECTIVE purchased by Citivale Ltd for £16.35 PURCHASERS THIS million from Aberdeen Standard at a YEAR AND MORE net initial yield of 5.75%. COMPETITION FOR ASSETS • Photon Park at the Normanton Industrial Estate was purchased by Figure 3 Leeds – Prime yields Citicentric on behalf of Adur District Source: Carter Jonas Council for £15.1 million at a net initial yield of 5.75%. The mixed office / Prime yield (%) Office Industrial Retail industrial park is occupied by car 8.0 auctions company Aston Barclay. This transaction is reflective of the recent

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