Market snapshot

Newcastle Office Market Pulse Q1 2016

After a strong finish to 2015, office leasing and investment activity across Newcastle slowed in the first quarter of 2016 as uncertainty surrounding the EU Referendum begins to take hold.  However, there are several strong unsatisfied requirements in the market place and, as such, we are confident city centre take-up will improve during the second half of the year.

The supply of grade A office space across Newcastle city centre remains extremely tight and, as such we anticipate that headline rents will continue to increase in 2016. 

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In this issue:

Slowdown in occupier activity as uncertainty surrounding EU referendum bites

After a strong 2015, leasing activity across Newcastle’s city centre office market slowed dramatically in the first quarter of 2016 to just 29,250 sq ft, representing a year-on-year fall of 39%. Out-of-town, take-up increased marginally from the previous quarter to 143,497 sq ft, albeit still a fall of 43% from the same quarter in 2015.

Across both markets combined, there were 16% fewer deals than the same period in 2015 and the average transaction size fell from 6,799 sq ft to 4,668 sq ft. The largest letting by some distance was to Sitel - a call centre provider which is expanding from a nearby location. 

Despite this slow start, there are several strong unsatisfied requirements in the market place which are taking longer than usual to progress. 

Positively, the region witnessed an improvement in employment growth in the second half of 2015, rising by 4%[1], and it is hoped that this will stimulate further occupier demand as we move throughout the year. 

[1] Source: NOMIS Labour Force Survey

Office to resi conversions continue to deplete office supply

The supply of grade A office space across Newcastle city centre remains extremely tight, with The Rocket – which extends to 35,000 sq ft - reportedly close to going under offer leaving just under 100,000 sq ft available.

Demand also remains strong from student developers, despite the impending Community Infrastructure Levy and, with a lack of any speculative development starts scheduled for 2016, it is likely that the shortage of office space in the city centre will accelerate even further throughout the year.

Consequently, some of the larger requirements will have very few options to consider- especially in the city centre. 

However, once refurbished, the former Eversheds’ space at Central Square South will add approximately 50,000 sq ft to the total available space.

Key occupational transactions, Q1 2016


Size (sq ft) 

Landlord / Vendor

Tenant / Purchaser

Q4 Quorum Business Park
Private investors
Loftus House, Colima Avenue, Sunderland 
National Friendly
RTC North
Digital House, Team Valley
UK Land Estates
Litter Boss

Source: Lambert Smith Hampton 

The Rocket tipped to set a new headline rent of £23 per sq ft

We anticipate that a new headline rent will be established in 2016 with a letting of The Rocket at a figure of £23 per sq ft. 

As the availability of grade A space dwindles, incentive packages continue to shorten and currently stand at between 6-9 months’ rent free for a five-year lease.

Lack of quality product hampers investment activity

After a very busy Q4 2015, the start of 2016 has been relatively quiet with a limited volume of new stock coming to the market. This is partly due to the high volumes traded during 2015 effectively reducing the number of tradable assets. Equally, there is evidence that investors are taking a more circumspect approach while the uncertainty of a potential ‘Brexit’ remains. We would therefore expect a similarly low key Q2. 

The most notable transaction in Q1 was the purchase in February of the circa 63,000 sq ft Citygate office development by EPIC for £18.95m, reflecting a net initial yield of 6.57% - a notable discount from the 5.75% achieved in Q3 2015.

Key investment transactions, Q1 2016


Value (£m) 

Yield (%) 



Citygate Office, Newcastle
Earl Grey House, Newcastle
Schroder REIM
Matterhorn Capital LLP
Admiral House, Doxford Business Park
4.15  8.88 SquareStone
Corona Properties

Source: Lambert Smith Hampton 

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Neil Osborne
Director - Office Agency

0191 338 8306

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