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Wednesday, March 21, 2024

Forecast for commercial property market in Yorkshire is positive

The outlook for the Yorkshire commercial property market is bright according to the findings of the Lambert Smith Hampton 'Weather Map' report. The report's highlight is the Sheffield office market with rents predicted to rise by 18.9%, the highest increase in the UK.

Current prime office rents in the city are 18.50 per sq ft, however this is set to increase to 22 per sq ft in 2007, and as a result Sheffield shows the highest office market rental growth out of the 36 areas in the UK surveyed.

The office market in Leeds is also set to remain fair with a rise of 4%; taking rents to 26 per sq ft. Nationally the office sector will continue to lead the market by rental growth in 2007.

LSH'?s analysis of 36 UK and Ireland office centres reveals that office rents will rise from an increase of 6.1% in 2006, to peak at 6.8% in 2007. They will then fall back to 6.6% growth in 2008, and 5.8% in 2009. The hotspots are headed by Sheffield, followed by Hemel Hempstead and Newcastle.

Robin Beagley director at LSH's Leeds office says: "The office market across Yorkshire will be driven by business investment, employment growth and the current lack of Grade A space. The recent trend has increasingly been for occupiers to pay a premium for quality space, such as in buildings with strong sustainability features."

Meanwhile, LSH's analysis of 35 UK and Ireland industrial centres reveals that industrial rental growth will accelerate from 1.4% in 2006, to 2.9% in 2007 and 3% in 2008, before settling down at 2.8% in 2009 per annum.

The hotspots are headed by Peterborough, where prime rents are expected to increase by 10.0% to 5.50 per sq ft, followed by Glasgow and Birmingham. Leeds and Sheffield are also set to see growth well-above the UK average at 4.5% and 4.8% respectively, resulting in rental heights of 5.75 and 5.50 per sq ft.

LSH predicts that new and emerging centres, including Sheffield and Doncaster, will grow in importance, due to the continuing strength of the logistics sector's demand for distribution space, which is driving up land prices in well-established distribution locations, as well as planning restrictions and the high cost of labour.

The dominance of the logistics market in the industrial sector will be driven by further growth in the retail segment, particularly the case at the larger end of the market, with the trend for sheds over 100,000 sq ft set to continue.

Guy Gilfillan, head of LSH's Sheffield office, says: "The outlook is very bright across all sectors in Sheffield. In the distribution sector, two of the UK's largest ever industrial deals were in the region and this is a sign of things to come. Big sheds and distribution units of 20,000 - 50,000 sq ft are still in great demand and South Yorkshire is in a strong position to offer the development land, access to a workforce and easy transportation links to the ports and throughout the rest of the UK.

"I predict the logistics sector will continue to grow fuelled by consumer spending and we will also see some emerging new markets across Yorkshire including Doncaster and areas of the M62 and M18 that are within easy reach of the Humber ports and the rest of the UK.

"Although much of the interest is from retailers, the success of the Advanced Manufacturing Park is proving that there is growing demand from the revitalised manufacturing sector.

"As a result, rents in the industrial sector in Sheffield will continue to rise; in turn this rental growth will continue to drive developer interest so it is set to be an exciting year for the South Yorkshire property market."

LSH's analysis of 32 UK and Ireland retail centres reveals that retail rental growth will fall from 3.1 per cent in 2006, to 2.7% in 2007, bottoming out at 2.5% in 2008, before picking up again. Retailers are striving to maximise turnover by targeting centres of population and affluence.

In Sheffield, retail rents will see above average growth of 3.9% over 2007 to rental highs of 265 per sq ft; predicting growth similar to other burgeoning regions in the UK such as Nottingham, Dublin and Cambridge. In Leeds rents are predicted to rise by 1.6% to a new high of 310 per sq ft.

LSH retail agent Graeme Walker explains: "The next three years will be challenging for retailers across the UK, with supermarkets entering the white goods market, increasing consumer expectations for value-for-money, as well as rising rental and labour costs. While Internet shopping is expected to double over the next five years, I think the retailers that embrace the change will succeed in extending their market reach.

"I predict that the retail sector will weather the challenge ahead and landlords will redevelop and amalgamate smaller units to satisfy the demand for large units, driven by demand from food and international retailers."

Investors will continue to focus on offices, with the sector having accounted for 45% of transactions in 2006 (compared with 35 per cent in 2003), at the expense of the slowing retail market. LSH forecasts total returns for office investors of 14% in 2007, outperforming retail and industrial returns, at 8.0% and 3.0%, respectively.

Robin concludes: "LSH's Weather Map is based on data from across our national network and reveals where the rental hotspots will be in 2007 across the main office, industrial and retail sectors. Its essential reading and the comprehensive guide to what's happening in markets right across the UK and Ireland."