A region by region look at the East Midlands office markets
Derby – Tim Richardson
I used the term ‘patchy’ to describe the office market last year and the same word can still be used a year on. Demand for speculative office development is still fairly low and the amount of available Grade A space is slowly reducing.
In relation to new builds, tenants are often faced with committing to at least a 10 or more likely a 15 year length contract, which most are reluctant to do. In light of this, 10-15 year old buildings which can easily be given a facelift are an attractive option. There is a shortage of such buildings within the Derby city centre but there are options available on popular out-of-town business parks Pride Park and Wyvern.
Leicester – Peter Doleman
At long last we are experiencing movement in the economic recovery of the Leicester office market. Throughout the recession transactions were still taking place but there now seems to be a growing confidence. This has manifested itself in more enquiries for larger accommodation which has recently led to a number of significant deals. Examples of this within the city are Shakespeares’ relocation to Colton Square, De Montfort University’s expansion into Wellesley House and the more recent letting to stock brokers Charles Stanley in Mercury Place. Out of town, Howes Percival moved from Bede Island to the former Hush Puppies’ headquarters on The Osiers (an offshoot from Meridian) and there is now serious interest in the former buildings.
In Leicester, we are not yet at the stage where there is a marked shortage of quality space available within either the city centre or out of town markets. However, the oversupply, certainly within the out of town market, has dwindled to the extent that there are few self-contained buildings available – certainly of any significant size and with little in the pipeline.
The pipeline of supply is vitally important for the local economy as the recovery gathers momentum, but with rents and incentives still sluggish to move, together with the reality of empty rates liability, there appears little appetite from developers to build out anything other than on a bespoke basis or smaller office schemes. Examples of this type of scheme include Jelson Interchange at Birstall, Le3 by Westleigh Developments at Junction 21a and the provision of two new buildings on the Abbey Lane science park by Sowden Developments, William Davis and the City Council. These smaller developments are crucially important to the recovery as they allow for the growth and expansion of smaller organisations. At the moment, there is little sign of anything substantial coming forward to the extent that we are almost not in a position to attract a large inward investor into the city with a ready-to-go opportunity.
The Leicester Office Market Forum – a public/private partnership – has started to promote the office market in the county very positively, outlining the availability of existing accommodation and the potential for new development on a number of sites within the city centre. The City Council’s own site on Welford Place is an example of a great opportunity, which will test whether a developer will be prepared to build offices speculatively on this site.
For a variety of reasons we are now seeing occupiers looking to relocate within the city centre. One important reason for this is the need to acquire better quality and well located stock. As a result, with the growing shortage of new accommodation and the potential lack of it continuing, they will need to be open-minded and prepared to consider the refurbishment of existing stock. Most will not have a problem with this, dependent on the quality and location of the finished article, but yet again with the number of these buildings that have either been demolished to avoid empty rates or converted to provide student accommodation, these good quality refurbishment opportunities are also in relatively short supply.
Nottingham – Chris Sinclair
In Nottingham, September has seen an improved level of activity with occupiers seeking anything from 100,000 sq ft to, in some cases, 50-70,000 sq ft. Whilst this demand is encouraging, lack of supply and therefore choice is likely to cause problems of a different kind.
Over the last five years the decline in rents/capital values and the upward trajectory of the value of incentives demanded by tenants has made any speculative development remote in the extreme. Any new development needs to generate rents of £20 per square foot and tenants need to commit to a long term lease such as ten years or longer. This is against a more usual scenario of a five year lease (often with a tenant-only break) and rents probably no higher than £14 or £15 per square feet.
Therefore without some form of support, it is likely that those parties with a requirement which cannot be met will have to continue to ‘make do’ until the market readjusts to make development a viable proposition.