Property agents JLL, Savills and GVA have urged developers to capitalise on development opportunities in Yorkshire and to address under-supply of housing, high-quality office and industrial space in the region.

Speaking at the Yorkshire Agents Review 2014 event organised by Built Environment Networking, the agents said the Yorkshire market was picking up speed but still faced challenges.

Jeff Pearey, director at JLL, urged developers to bring forward office schemes to address under-supply of office space in Leeds, particularly high quality space.

Of the big six office markets outside London – Leeds, Birmingham, Bristol, Manchester, Edinburgh and Glasgow – Leeds was second only to Manchester in terms of volume of office deals last year, with 800,000 sq ft of transactions, just shy of Manchester’s 840,000 sq ft.

Leeds topped the six in terms of Grade A office deals and also volume of deals over 10,000 sq ft, Pearey said.

The flurry of transactions leaves Leeds with just 150,000 sq ft of available Grade A space remaining – less than 1.6% of overall supply, the lowest it’s been for 11 years.

Pearey noted 1.9 million sq ft of office schemes have planning consent in central Leeds and the city is “crying out for those schemes to be built”.

But despite dwindling supply, Pearey says pre-lets are still key to schemes progressing and he expects “very little new stock” to come through this year, although he is “hopeful of a return to speculative development this year or next”.

He added average rent per square foot would have to raise “from the current level of £25 up to £27 or £28 to interest the funds”.

Industrial renaissance

Richard Harris, director at JLL, said the industrial sector in Yorkshire enjoyed its best year for three years in 2013 and there was now under-supply in the sector for the first time since the recession.

At the end of last year supply of big industrial sheds in Yorkshire was down to 1.5 million sq ft across six units, down from 6.1 million sq ft of available space across 21 units in 2010.

Harris warned that of the remaining empty large sheds most are “partly compromised” in terms of location, quality or connecting infrastructure, leaving the market “under-supplied”, with “only just over 12 months of supply left in the market”.

At the smaller multi-let end of the industrial market, Harris said there was “very little quality product”, which had put “speculative funding and speculative development back on the agenda”, although the schemes are “likely to be more modest than we’ve seen in the past both in terms of scale and number of units”.

Harris said manufacturers coming back to the UK, as well as the rise of internet retailing and the logistics sector, would continue to fuel demand for industrial space in Yorkshire. Securing development funding “remains the key issue”.

Bruce Allan, director at GVA, said “there is confidence in the Yorkshire region” across all sectors and predicted “there’ll be a few months of increased activity from funds and other investors” in the region.

In the industrial sector, Allan warned of some “sticking points”, including investors sitting on land for industrial schemes “bought pre-recession at high prices that are now being held because they can’t make a return at current prices”.

H also cautioned he’s seen an increase in “speculators buying land and holding on to it for six months just to get a return – I don’t think it’s healthy but that’s the reality of the market we’re in.”

Housing hope

Matthew Jones, director of development at Savills, said housebuilders were more bullish about the Yorkshire market this year: “Last year they were selling two plots a month in Yorkshire, but this year it’s three to four – it’s making a big difference and generating more cash for land purchases.”

He said he was “positive” about the Yorkshire residential market and there were “a lot of big schemes coming forward, particularly in the Leeds area”, but cautioned the supply of housing land was still “too slow” and “rising construction costs” was a risk factor for housebuilders.

Jones also cautioned land values are not “increasing by as much as everyone thought they should”, and while values in some prime spots in places like Harrogate were going up, land around cities such as Bradford was still bumping along at recession-level prices.

More positively, Jones said the planning environment in Yorkshire had become more favourable for developers, with Wakefield and York City councils among the most pro-development, while Jones pointed out Leeds had lost 11 planning appeals on the trot brought against it by housing developers.

Jones said he expected the Leeds private rented sector to capitalise on the “investment fund money coming up from London” and that the market would closely follow London and Manchester’s lead.