Member Article

The office market in Sheffield will continue to prosper - CPP

The office market in Sheffield will continue to prosper in 2016, according to Rob Darrington, partner at Commercial Property Partners (CPP), the leading South Yorkshire property consultancy.

Mr Darrington commented: “From an office sector perspective, 2015 was an eventful year in Sheffield, seeing speculative development, new headline rents, the greatest level of take-up in over a decade and an improved investment market.

“There is no reason why this positive trend in the city’s office market should not continue this year. The combination of all these factors should ensure that Sheffield will maintain its upward curve, providing first-class office accommodation for a wide variety of occupiers.

“More specifically, I expect to see continued high activity from SMEs (sub-5,000 sq ft occupiers), who dominated the market again this year, accounting for 80% of the transactions, albeit only 30% of actual sq ft floor space.

The average transaction size increased by 15% compared to the previous year, to 5,184 sq ft, which is expected to continue through 2016.

It is expected that Sheffield will also see continued rental growth, albeit it at a slower rate than last year. The sector that will see the highest growth will be the ‘Grade B’ sector.

“The demand for Grade A accommodation will continue, although take-up may not increase proportionately due to lack of availability through 2016. This will change when major schemes such as the next building at Sheffield Digital Campus, Acero comprising 80,000 sq ft, and Steel City House, comprising 60,000 sq ft, reach completion in early 2017,” explained Mr Darrington.

Mr Darrington said he hoped to see a firm decision taken on the Sheffield Retail Quarter (SRQ), which would have a tremendously positive knock-on effect on the city’s office market.

“I appreciate this is probably moving quicker than it has in years, but the lack of progress on this matter is extremely frustrating and has cost the city millions in lost revenue. Sheffield needs a strong retail core.

“Everything else builds on this. Increased visitors lead to increased jobs and residential population, which leads, in turn, more money spent, an improved economy and new development and services,” he explained.

Mr Darrington said he believed that the student residential market would continue to see success, as both universities continue to prosper.

2,015 was the fourth year of consecutive growth with the year seeing the highest take-up (476,908 sq ft) since 2001, when take-up was unusually high. This was 65% higher than the 10 year average of 294,500 sq ft.

Meanwhile current availability of Grade A stock for the city centre is 208,000 sq ft, down from 227,000 sq ft (these figures include both 3 St Pauls Place and Steel City House which are still under construction). The city centre has a total availability rate (across all grades) of 7%, and a Grade A product of 4.5%.

Mr Darrington revealed: “The most active occupier sector recently in Sheffield remains to be the Public Sector, but this is due to significant investment by both Universities, rather than Government / Local Public Sector organisations, which have reduced as a result of the government cuts. The Professional and Business Services sector has seen significant growth, now accounting for a third of all take up, showing that the Private Sector is taking the lead.

“One of the major issues during the last downturn has been the negative pressure on rents within the secondary sectors of the market. Over the last 12-24 months we have seen a fundamental shift in the dynamics of the market. Much of the tertiary stock has been converted to residential via permitted development rights schemes,” said Mr Darrington.

“This has meant that the buildings that have had a negative impact on rental values no longer exist. Combined with increased demand and investment in the well located better quality grade B buildings, there is now documented evidence of rental growth. Quoting rentals are now 25% higher in key office locations.

Mr Darrington explained: “This has reduced the price gap between new office developments and existing stock, helping the mind-set of businesses moving into new buildings. The recently agreed deal at 3 St Pauls Place, where Arup are taking 16,000 sq ft at a headline rent of £23.00 per sq ft and the next phase of Sheffield Digital Campus which will be quoting £23.50 psf, have now firmly cemented rental levels in the city.”

This was posted in Bdaily's Members' News section by Robert Beaumont .