Leeds office rents to hit £40 per sq ft this year, tips Knight Frank

With grade A availability low and prime rents 19% higher than at the onset of Covid, the firm expects increases in headline rents to continue.

City centre rents have increased by 3% to £38 per sq ft in the last year, Knight Frank said, with deals at £39 per sq ft now in the works.

The firm’s latest research said that overall office take-up of 349,332 sq ft in the first six months of 2024 was buoyed by a particularly strong first quarter of this year, as reported in April by the Leeds Office Agents Forum – although 2024’s largest deal so far came in July with 43,713 sq ft let to the NHS at Joseph’s Well.

Underpinning occupier demand have been the finance, banking, insurance and professional services sectors, accounting for half of total office space leased this year.

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 per sq ft by the end 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.”

Grade A availability fell to 192,841 sq ft at the mid-year point, a figure 18% below the corresponding figure from 2023, and 28% lower than the 10-year average for Leeds. The total market vacancy rose marginally to 6.8%, from 6.3% recorded at the equivalent period last year.

Fox concluded: “There is now 428,489 sq ft of speculative office space under construction across seven buildings in the city. Comprising both brand-new builds and comprehensive refurbishments, delivery is scheduled throughout the rest of 2024 and during 2025-2026.”

Meanwhile investment volumes in the office market totalled £24.75m between January and the end of June this year. Comprising four major deals, the total was 25% higher than in the first half of 2023.

The largest deal was 7 Park Row, which was bought by financial services firm Firefly Capital for £8.35m. Prime yields remained stable at 7%.

According to Knight Frank’s report, the strong occupier market will mean that investors remain largely bullish on Leeds offices.

The report concluded: “A clear election result brought much-needed political stability, whilst the ONS confirmed that the UK recorded positive economic growth in Q1. Inflation is also seemingly under control, which has allowed for the first interest rate cut since 2020 and improved the likelihood of further cuts ahead.

“Moving forward, each of these will support the desired stable backdrop for businesses and consequently, commercial property activity in the latter half of 2024.”