2022 FORECAST
Leeds
- The cancelling of the Leeds leg of HS2 and the downgrading of the Northern Powerhouse line, while negative, will provide clarity for the city. The Government’s £830 million investment for a Mass Transit system for West Yorkshire will be a substantial improvement to the public transport offer.
- The outlook for the economy is positive – with GVA expected to grow by 6% during 2022, compared to a pre-covid average of 2.3%.
- During the course of the year, we will continue to see an evolution of office tenant demand – with more requirements for fitted and serviced space.
- The leisure offer in the city continues to evolve. Trinity’s already strong F&B offering is improvement, with a new concept going into the top floor in the city.
- The market is coming off a bumper year in which 6.5 million sq ft was transacted across Yorkshire. However, there is a critical lack of stock in the region which could impact the ability to satiate levels of demand in 2022.
- While the Leeds BtR market is well established, we believe that during 2022 funds will be increasingly looking for exposure to the suburban Yorkshire rental market.
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Economy
Offices
Retail
Industrial
Residential
Economy
The big news in the city during the back end of 2021 was unfortunately not particularly good news. The cancelling of the Leeds leg of HS2 and the downgrading of the Northern Powerhouse line is seen to be diluting the levelling up agenda and potentially damaging the economic prospects of the city. The decision nevertheless does provide clarity for the city and a number of developers and saves a large number of buildings otherwise earmarked for CPO. There is actually a belief that the lack of upgrading the east-west connectivity is more important to the city, and the revisited potential investment into the the mass transit system would be a substantial improvement to the public transport offering.
The outlook for the economy is positive – with GVA expected to grow by 6% during 2022, compared to a pre-covid average of 2.3%. Growth is expected to be driven by a rebound for the sectors that were hardest hit during the pandemic, such as Accommodation and Food Services (29.2%), Arts and Entertainment (16.8%) and Education (9.4%). Transport and storage is forecast to grow by 9.2%, its strongest since 2011.
The employment picture is positive, with the city expected to add 11,700 roles during the year, 2.4% growth. Over 5,200 of those new jobs are expected to be office based. The unemployment rate is forecast to edge down to just under 4.0% in 2022, having peaked at 4.2% in 2020.
LEEDS DASHBOARD – ECONOMY
Offices
Occupier activity has rebounded well during the course of 2021, with strong levels of demand from financial, professional and business services firms – including Lowell Group, DLA Piper and Labcorp. During the course of the year, we will continue to see an evolution of tenant demand – with more requirements for fitted and serviced space. Currently the vast majority of future requirements are below 10,000 sq ft.
Supply remains historically relatively low, although there has been an increase in city centre vacancy, from 5.1% at the beginning of 2021 to 7.9% going into 2022. This has been partially driven by some tenants downsizing and looking to sub-let space.
However, the limited availability of grade A space has pushed up prime rents. The majority of new space due to come online during the course of the year will be though refurbished space including 54,368 sq ft 12 King Street, 48,371 sq ft Whitehall Quay II and 25,000 sq ft at Taylor’s Corner.
New supply will also come through at 11 and 12 Wellington Place (244,000 sq ft). In addition, 37,800 sq ft Globe Point at Temple will complete next year and 138,000 sq ft City Square House and two buildings at Vastint’s Tetley site (147,000 sq ft and 63,000 sq ft) are also under construction.
LEEDS DASHBOARD – OFFICES
Retail, Hotels and Leisure
At the end of 2021, retail vacancy stood at just under 22%, although a large proportion of that space is secondary-tertiary quality, with prime vacancy at 9.1%. Despite this, Zone A rents have fallen just 2.5% during the course of 2021. With rents having fallen significantly during the course of the last number of years, the rate of decrease is likely to slow during 2022. The city continues to attract high quality tenants with new store openings in Leeds include JYSK, Boodles and Sky. The former Debenhams is being redeveloped as student housing. The leisure offer in the city continues to evolve. Trinity’s already strong F&B offering is improving, with a new concept going into the top floor in the city. Roxy Ball Room are relocating to The Light.
The city has no new major hotel proposals in the pipeline for the year, which presents a positive development opportunity for a city which has a significant amount of older stock. During the course of the year, there are likely to be a number of investment opportunities which will lead to repurposing and upgrade trading assets. The city continues to attract new interest due to the number of new development opportunities as part of the regeneration going on in the city – the Tetley Brewery site is earmarked for potential hotel use. Channel 4 opening its new office in the city will contribute to driving business demand.
LEEDS DASHBOARD – RETAIL
Industrial
The market is coming off a bumper year in which 6.5 million sq ft was transacted across Yorkshire. However, there is a critical lack of stock in the region which could impact the ability to satiate levels of demand. As a whole, supply levels are much lower than all other UK regions, excluding Scotland, and much of the new supply that has come through has been accounted for, with little coming through in 2022. Rental values surged in 2021, rising by 24% year-on-year, after many years of stagnant growth.
In what has been a busy start to the year, supply in the pipeline will help address the shortage. Panattoni has submitted an application for its largest ever UK speculative logistics building, with a 630,000 sq ft building and a smaller 85,000 sq ft building close to the M18 motorway – at the new Panattoni Park Rotherham. Harworth Group has also submitted plans for 2.8m sq ft of industrial and logistics space at two sites close to Leeds for up to 2 million sq ft of space at its Gascoigne Wood site and a further 800,000 sq ft at Skelton Grange.
Towards the end of 2021, Urban Logistics REIT raised equity to deliver a 132,000 sq ft scheme on Newall Road, which they hope to do by the end of 2022.Demand is coming from production as well as distribution – including data centres, film studios and EV manufacturers. At the former Skelton Grange Power Station, next to the M1, Catalyst Capital recently acquired a site for the development of a 100MW battery storage facility, which is due to be operational by the end of 2022. Demand for new space will continue to drive up land values and create opportunities around either repurposing out of town office space or changing use of consented residential schemes to industrial as they could command higher value.
LEEDS DASHBOARD – INDUSTRIAL
Residential
House prices in Leeds rose a very strong 7% in 2021, despite underperforming the wider UK average of just over 10%. Despite this, the growth is still very strong in a recent context and well ahead of the 3.5% average growth that Leeds experienced between 2017-19.
The relative underperformance compared to the wider UK has been seen across most of the cities and reflects the preference purchasers have shown for properties in less urban locations with more private personal space. Within Leeds, properties that have private outdoor space or a good level of communal amenity have performed better. Broadly we expect the demand for city living to return in 2022 and new build apartments will increasingly reflect the change in work/life patterns that we have seen, with more focus on amenity and particularly flexible work facilities.
The Build to Rent sector in Leeds continues to attract attention, although investors have concerns about the level of supply, particularly in some locations. There was good news to be had towards the end of the year with Federated Hermes agreeing to forward fund the next phase – 331 new homes - of Hestia’s SOYO development. The market will be supported by strong levels of employment in the city and high student retention. We expect a key 2022 theme will be funds increasingly looking for exposure to the suburban Yorkshire rental market.
Towards the end of 2021, planning permission was granted at Lisbon Street for two BtR towers offering 629 apartments, a 548 bed student accommodation block, as well as a 120 room aparthotel – in addition to 150,000 sq ft of workspace. Work will start during the course of 2022.
There are parallels between the BtR and Leeds’ PBSA market, the demand fundamentals look strong but there are concerns about the levels of supply. There are five universities in the city, including Leeds University which is one of the largest in the country and in the Russell Group. This will continue to attract high numbers of applicants, including from overseas. However, there is a significant volume of PBSA supply either being delivered or in the pipeline and for that reason we advise that investors need to be highly selective when pursuing opportunities in the city.
LEEDS DASHBOARD – RESIDENTIAL
2022 Forecast Leeds Digital Event
Watch our recent live event, where we brought together a series of experts to explore the key drivers and predictions for Leeds in the year ahead.
Broadcast Wednesday 26th January
