Posted 30 October, 2020 OBI BLOG
After a subdued second quarter of workspace transactions in Leeds city centre, which saw the majority of live requirements being paused, take-up was significantly enhanced during Q3, correlating with the apparent easing of lockdown restrictions during the quarter. A total of 88,507 sq ft was transacted during Q3, reflecting a significant increase from sq ft in the previous quarter and bringing year-to-date city centre take-up to 214,487 sq ft.
Knights acquisition of two floors at Majestic, totalling 22,166 sq ft, was one of the stand-out deals of the quarter and the year to date. Although confidential, the rent has solidified the upward trend in headline rents to £33.00 – £34.00 per sq ft, demonstrating the continued demand from occupiers for high-quality workspace. Schroders Personal Wealth committing to 9,921 sq ft at APAM’s newly refurbished One City Square at a rent of £31.00 per sq ft re-enforces this statement, occupying one of the most desirable addresses in the city. The second largest deal sees the NHS Trust commit to 21,804 sq ft at 2 Park Lane, which was comprehensively refurbished during 2019. A total of 68% of take-up during 2020 was Grade A workspace with 64% of demand focused within the Central Business District.
The Legal and Financial & Professional Services sectors account for the largest proportion of take-up for the year to date with a combined 34%. However, as expected, Technology, Media & Telecoms and Pharma & Health are not far behind accounting for 28% and demonstrating resilience to the current pandemic.
The trend in occupier demand for flexibility was apparent pre-COVID-19, however the events of 2020 have accelerated this further with the average lease term certain across all sectors reducing by approximately 15% from 2019 to c. 4 years. Once again, the Legal and Financial & Professional Services sectors were committing to above average lease lengths at 7.81 and 5.17 years respectively with established occupiers in this sector demonstrating a commitment to their Leeds city centre footprint and delivering an enhanced post-COVID-19 workplace.
The managed workspace sector, which has grown dramatically across the UK and Leeds, is likely to attract renewed demand from operators as there will be increased demand for occupier flexibility during these times of uncertainty and recovery. The appeal of short term commitments and limited requirement for upfront costs for fit-out will appeal to businesses at a time when cash working capital is essential and businesses await the full effects of COVID-19 to be apparent before committing to a medium term real estate strategy.
We expect intuitive Landlords in the city will follow trends seen in Manchester, Birmingham and London and re-calibrate their traditional workspace offering by providing fully-fitted suites offering enhanced flexibility, cost transparency and easy-in, easy-out approach for occupiers, catering for their current requirements as they navigate the pandemic. In Manchester, we have seen a notable increase in occupier requirements for fully fitted suites; and buildings which have speculatively delivered this offering are now reaping the rewards at a time when general occupier demand is subdued.
Fully Fitted – 55 Princess Street, Manchester (Left) / Fully Fitted– Bonded Warehouse, Manchester (Right)
As we enter the fourth quarter of 2020 and new lockdown restrictions beckon, the city centre office market, although experiencing below average take-up, is demonstrating resilience. Emerging from lockdown we all gained a renewed appreciation of the need for physical interaction and collaboration outside of our homes. The role and necessity of the office was questioned at the beginning of the pandemic, however a shift in sentiment means the office and its importance to businesses and staff is as prevalent as ever. The office itself in terms of size, location and design will undoubtedly adapt to meet the needs of the post-COVID-19 world and re-enforce the importance of the workplace over the next 24 months.
The increased activity during Q3 from Legal, Financial and Tech sectors is encouraging as these sectors are the backbone of the city and are an important part of why Leeds has become a powerhouse in the North of England. We expect this resilience to continue to shine through for the remainder of the year with high hopes set on next year where the city will continue to rebuild and enter an important stage of regeneration and growth.