Leeds office rents now breaking all records

The prime rent for Grade A office space in Leeds has now risen to £38 per sq ft, breaking all records, according to global property consultancy Knight Frank.

In Knight Frank’s brand-new UK Cities report, published this week, it is revealed that city centre rents have increased by six per cent over the past 12 months.

Notably, prime office rents have risen by 19 per cent since the onset of the Covid pandemic, the second largest increase seen across the Big Six regional cities.

Eamon Fox, partner and head of development at the Leeds office of Knight Frank, explained: “With strong occupier demand and supply-squeezed market, forecasts indicate that prime rents will reach £40.00 per sq ft by the Q2 of 2024.

“We have several transactions agreed and progressing through legals at £39 psf, with £40 psf being the next milestone. The market is such that transactions are no longer rent sensitive, but amenity and quality is scrutinised more than ever by our occupier customers. When we get this right, we see growth in rents”.

“Leeds experienced strong occupier demand in 2023, with the city registering the highest level of annual take-up since 2019. Total take-up during the year was at 651,461 sq ft, 10 per cent above the 5-year annual average and a nine per cent year-on-year increase.

“During 2023, the number of deals rose slightly from the previous year to 127 completed, 17 per cent above the five-year annual average.

“With above average levels of take-up in 2023, demand for best-quality space was strong, accounting for 74 per cent of annual take-up,” said Mr Fox.
Occupier demand in 2023 was underpinned by the Finance, Banking and Insurance, and Professional Services sectors, accounting for 30 per cent and 28 per cent of total take-up respectively.

The largest letting of the year was to Lloyds Banking Group, who took 124,400 sq ft of grade A space at 11 & 12 Wellington Place in Q1. This was the largest occupier deal to be completed across all of the major UK regional cities last year.

The availability of Grade A space stood at 176,286 sq ft at 2023 year-end, 66 per cent less than the previous year and 34 per cent below the 10-year average for Leeds. The level of grade A supply at the end of 2023 is the lowest since 2019, illustrating the ongoing supply squeeze in the office market.

At year-end, 581,984 sq ft of office stock was under construction with delivery due this year. Of this, 295,939 sq ft is speculative. Comprising five schemes, 232,688 sq ft is new build, whilst the remaining 63,251 sq ft is undergoing comprehensive refurbishment. Most of the speculative space is expected to complete by next month (March).

Meanwhile, owing to macroeconomic and geopolitical instability, investment volumes were subdued in 2023, finalising at £80.4m, 65 per cent short of the 10-year annual average.

The largest investment transaction was the sale of the BT Building, One Sovereign Square to Citi Private Bank for £38.5m. The building also has 12 years unexpired on the lease, let to its namesake, BT Group.

Overseas investors accounted for the greatest share of annual investment turnover, at 56 per cent, owing largely to the above deal, and with capital coming from both the Middle East and South Africa

According to the UK Cities report, the strong occupier market will mean that investors remain largely bullish on Leeds offices. With prime office yields unlikely to soften further, although secondary yields are more difficult to predict, it appears they have reached a level at which investors are more comfortable to deploy capital, all of which is hoped to foster market activity this year.