Northern Office Market
Regional offices have had a prolonged period of bad press and in some ways, it’s easy to see why when you consider what has happened over the last few years.
First off it was the pandemic and the overnight switch to remote / home working and the subsequent struggle to get those workers back to the office, then increased interest rates and a significant drop in investor sentiment towards the sector has seen a plummet in the perceived prime yields.
Occupational Market
Where in almost complete contrast, the occupier markets of the major regional northern cities have seen record rents increase in nearly all major cities. For example, prime ‘quoting’ rents in Leeds are now pushing the £40 psf boundary and is looking to bridging the traditional pricing gap to that of its big northern neighbour of Manchester.
The below represents the established rents at the end of 2024 in those cities we regularly work in:
| City | Prime Established Net Initial Yield | Example Deals | Year on Year Change (£psf) |
| Leeds | £39 | Wellington Place & 12 King Street | +5% (£37) |
| Manchester | £45 | No. 1 St Michaels | +12% (£40) |
| Newcastle | £32 | Bank House | +10% (£29) |
| Sheffield | £30 | 1 St Pauls Place | +12% (£26.50) |
| Birmingham | £42.50 | 10 Brindley Place | +2% (£41.50) |
The above represents achieved rents, whereas we’re aware quoting rents in Leeds in particular are pushing beyond the £40 psf mark and we hear on the grape vine that a prime Grade A office suite is currently under offer at £42 psf which represents a further 10% increase from the currently established £39 psf.
While prime rents are increasing, transactional data suggests occupiers are downsizing but in doing so, are they more willing to pay more per square foot, in order to provide better quality workspace for staff. Occupiers are putting more emphasis on ESG credentials, collaborative workspace and creating a more desirable working environment which continues to be seen as a major factor in retaining & attracting talent.
Investment Market
In most property sectors, if the occupier market is strong then its investment market should be strong. Unfortunately, this has not the case in the office sector.
In their prime, offices in major regional cities with 10 years+ term certain stood at 4.75%. Today, they stand at c.6.50% representing a 175 basis point swing in the space of 2 years, although admittedly, there has been little evidence to back this up so the opinions of prime yields are based on sentiment more than actual transactional evidence.
To provide a sense of what is currently on the market, we note that the following are currently active:
Central Square Leeds
- Prime 217,259 sqft Grade A office plus 13,126 sqft retail, leisure and restaurant space
- £6,661,149 pa (£28.41 psf office)
- WAULT of 5.6 years (TBO) and 7.8 years to lease expiry
Sold £78m (8% NIY / £340 psf) in October 2024.
The Mint, Leeds
- Secondary. 118,083 sqft of Grade A office accommodation. BREEAM Excellent rating
- Fully let to JET2 PLC on individual leases until 2033 at £2,877,000 pa (£22.50 psf). TBO in 2029
Sold £16m (16% NIY / £135 psf) in February 2025.
3 St Pauls Place, SheffieldLLH – 240 years unexpired.
- Best in class 77,146 sqft of Grade A office accommodation. BREEAM Excellent
- £1,872,861 pa (£24.18 psf) with 1 vacant office suite (4,178 sqft). WAULT of 3.4 years to expiry / 2.4 years to break
Sold £16.8m (10.67% NIY / £220 psf) in February 2025.
City Gate, Mosley Street, Manchester
- Freehold.
- 47,679 sqft good quality office accommodation with ground floor banking hall. Prime traditional business district of Manchester city centre
- Majority let to Sec of State. 1x vacant suite. £1,082,794 pa (£22.73 psf). WAULT of 6 years to break and 8 years to expiries
Sold £14m (7.25% NIY / £296 psf) in December 2024.
Investors continue to seek out best in class assets, which are generally considered as offering the following attributes:
- Strong ESG credentials
- Strong tenant line up
However, there is certainly a reluctance to test the market with prime assets, with owners adopting a hold and wait approach to see which direction the interest rates and cost of debt is heading in the short to medium term. Although by not braving the market, its ultimately damaging the wider perception of the asset class of office as generally speaking, those assets that don’t fit within this criteria will likely continue to fall by the way-side with some unpredictable pricing.
On a more positive note...
After now experiencing a prolonged period of lower inflation which ‘should’ create the opportunity for the Bank of England to reduce the base rate further beyond the most recent reduction to 4.50% in February 2025. However, its generally the market consensus that higher rates are here to stay for longer and any further decreases are going to more gradually implemented as the wider global economy deals with bigger issues away from home.
The Big Question?
Have we seen the bottom of the market for the office sector? Will appetite return with a strengthening of yields and positive pricing adjustments?
Surely it cant get any worse for the office investment market? The underlying fundaments are strong in the occupational market, so while there is some optimism creeping back into the market for the best in class assets, I consider it more likely that a wider two tier market will continue as investors avoid assets which require more attention and ultimately, cap ex.
About Brett
Brett heads up the northern commercial valuation team at Allsop. Having joined in 2022, he has built a platform for Allsop’s commercial offering out of the Leeds office which is situated in the heart of its city centre.
Having recently worked on an array of regionally significant assets from major city centre office investments in Manchester, Leeds and Sheffield, one of the largest warehouses in Yorkshire and a new build development site for a prime logistics shed in North West to regionally dominant retail parks and shopping centres.
Through working on several instructions over the last 6 months, Brett has also built up a particular specialism in the valuation of cinema anchored retail & leisure complexes, which is a particularly tricky asset class due to the fundamental issues surrounding the operation of these complexes, their performance post the pandemic and the typical rental agreements which are not reflective of the current market conditions.
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