Office space features in the city's proposed West Bar site

Estate agents Knight Frank said the city was "a hotbed of investment" for firms seeking office space.

Office rental growth in the second half of 2004 outpaced any other provincial city, rising 20% on the previous year.

The report forecast that 8,200 office jobs could be created over the next decade, driven by expansion in public services and the financial sector.

To accommodate that expansion the city must create about 1.5m sq ft of new space, says Knight Frank.

Skilled labour

Despite this demand, rents were projected to remain "significantly cheaper" than in Leeds or Manchester.

"Sheffield's primary strengths are its competitive rental levels in relation to other cities and its pool of skilled labour, greatly contributed to by two universities within the centre," said the report.

"Despite the national economic conditions we anticipate demand for space to continue to outstrip supply for the foreseeable future."

The construction of new residential property in the city centre had restricted the stock of prime office development sites, it added.

"However, it has improved the urban environment of the central area, which is now catching up with the more established centres of Manchester and Leeds."