CoStar Analysis: Spotlight on York

By Chris Johns - Friday, April 13, 2018 9:04

Three years of positive net absorption, coupled with a spate of building conversions to alternative uses, has caused the office vacancy rate in York to halve, from above 16% in 2014 to around 8% at the time of writing in April 2018. Could these improving fundamentals tempt developers in a city that has been starved of new office construction in recent years?

Absorption strengthened markedly in 2017. Office demand supported by sizeable lettings to Tees Esk & Wear Valley NHS Trust (19,150 sq ft) and SES Engineering (17,050 sq ft), as well as a cluster of sub-10,000 sq ft deals involving technology-focused businesses such as Trailight (5,360 sq ft), BHP Chartered Accountants (4,115 sq ft), and Kettle & Keyboard (2,745 sq ft).

All of the above deals were for office space built prior to the financial crisis. In fact, only one office property larger than 25,000 sq ft has been built in the city since 2007—a purpose built headquarters for insurance firm Hiscox. Indeed, the city’s office inventory has actually fallen in recent years. These declining levels of stock can be attributed to the conversion of several redundant office buildings to alternative uses. Notable examples include the conversions of United House (43,500 sq ft) and Holgate Villa (29,000 sq ft). The former became student accommodation in Q1 2016, while the latter was converted to 50 apartments in Q3 2016. Moreover, James House (35,000 sq ft) was converted into temporary homeless accommodation by the city council in Q1 2017.

Looking forward, vacancies in the city are likely to remain tight in the near term, with nothing under construction at the time of writing and further conversions imminent. Work will begin soon to convert Aviva’s former office—Yorkshire House (65,000 sq ft)—into a 124-bedroom Malmaison hotel, while Ryedale House (80,500 sq ft) is set to be converted into 77 luxury flats following its purchase by Silverback Developments in Q4 2017. Furthermore, Palace Capital is understood to be starting demolition work on Hudson House (97,750 sq ft) soon, with plans in place to build four new buildings comprising 127 apartments and 34,000 sq ft of office space. The latter, expected to complete in 2019, is the earliest that any new office stock could arrive in York.

Falling vacancies and improving demand have supported robust growth in York’s average rents in recent years. In the 12 months to April 2018, average rents in the Central and Outer York submarkets grew by around 6% and 3%, respectively, compared to sub-2% growth in nearby locations such as Leeds, Doncaster, Sheffield, and Hull.

Please click here for our latest Central and Outer York submarket reports.

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