Sheffield, UK – Commercial property experts are forecasting that more than 80,000 sq ft of quality office space could be taken up in Sheffield city centre in the first six months of this year alone, based on findings from a professional research report.

The prediction is based on data from Knight Frank’s Sheffield Market Activity Report published today which highlights record city centre office rents for Sheffield in the last year, as well as increased investment activity and an improved residential market across the South Yorkshire region.

Sheffield was one of only three of the UK’s 11 key regional markets to see headline office rents rise in 2010.

A steady take-up of Grade A space at prime locations in the core city area included the year’s largest transaction – Kennedys solicitors’ 16,700 sq ft deal at Ventana House. The deal set the record rent for the Sheffield market of £20.00 per sq ft and was described by Knight Frank partner Tim Bottrill as a strong example of “the robust demand evident for the very best city centre accommodation”.

Good quality refurbished space was also in demand in prime locations such as Fountain Precinct which, thanks to affordable rental levels, is already 80% occupied.

Tim said: “Landmark building The Balance is also now nearing completion and likely to address the demand for Grade A refurbished space.”

A 20% reduction in Grade A supply has reflected a lack of development activity – Sheer Challenge’s Crown House in West Bar was the sole city centre completion last year.

In the industrial sector, the large scale distribution market is expected to remain buoyant in 2011, on the back of a previous year that saw healthy levels of take-up of small to medium-sized stock throughout 2010. Last year also saw a clear revival in demand for big sheds, culminating in more than 1.7m sq ft of take-up in the latter half of 2010 alone.

2010 witnessed a “notable improvement” in South Yorkshire’s investment activity, with the number of recorded transactions increasing by 45%. Sheffield city centre examples included Canada Life’s £24m purchase of St Paul’s Place.

The majority of investment transactions in the region were driven by private investors and property companies, and demand for prime and good quality secondary property remains resilient.

“There is life in the South Yorkshire investment market,” said Andrew Harrison, Knight Frank investment surveyor. “However, there is no substitute for strong local market knowledge. Investors need to undertake thorough pre-bid due diligence on covenant, location, rental and capital values.

“As banks continue to actively take control of under-performing properties, secondary stock levels are likely to increase during the year and into 2012 – presenting value-added opportunities for investors with the appetite for active management.”

Following two years of relative inactivity, the report reveals that South Yorkshire’s residential land market “finally came to life” in 2010 with a number of land deals among the larger regional and national house-builders driven to address shortfalls and secure future income. However, developer interest remains “highly selective”.

“A two-tier market has come into existence,” explained Andrew. “The market for smaller sites remains very subdued but there is better news for larger sites geared to lower density housing.

“Signs of life have returned, but location and site characteristics are crucial. Smaller residential schemes will remain unattractive until banks begin to provide development finance, while ‘oven-ready’ sites – those with little or no upfront infrastructure costs – will continue to generate strong interest throughout this year, if they have land consent in good locations.”

Sheffield’s out-of-town office take-up in 2010 was closely in line with the city centre level and just 2% below the annual average. Highlights over the last 12 months include Thorncliffe Park and Smithy Wood, but, with no speculative development underway, the supply of Grade A accommodation is steadily diminishing.

However, two major developments proposed in the out-of-town market are expected to offer development opportunities to both existing regional occupiers and inward investors. Sheffield Business Park has already attracted significant occupiers including South Yorkshire Police and HSBC and developers have recently launched the second phase of 60 acres to market which could deliver a further 600,000 sq ft. Equally, British Land’s 62-acre Meadowhall Metropolitan site could mean up to 1.2m sq ft of commercial development alongside residential.

Barnsley’s out-of-town offer is predominately focused along junctions 36 and 37 of the M1. Recent notable developments include Capitol Park and Gateway Plaza. Doncaster’s Lakeside complex is home to a diverse range of small and large occupiers while last year’s stand-out Rotherham examples include Magna 34, Fullerton and Phoenix Riverside.

Said Tim: “We foresee a gradual strengthening of rents and sale prices 12 months from now. Enquiry levels are improving which is an encouraging sign for 2011. Appetite for freehold purchase has improved compared with a year ago, but this will depend on improved funding conditions.”

The Knight Frank report agrees with Experian’s latest forecast in predicting South Yorkshire’s economic recovery will “marginally lag” the UK over the medium-term, with growth of 1.8% p.a. over the next five years, compared with 2.0% p.a. for the UK as a whole.

“However, the region’s manufacturing sector is forecast to outperform, with growth of 2.4% p.a. compared with 2.0% for the UK,” Tim added. “Our region’s core strengths – quality of labour supply and competitive rental levels – underpinned by Sheffield’s two universities, bode well for longer term growth prospects.”

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