Market snapshot

Office Market Pulse Newcastle Q1 2017

Newcastle’s office occupier market continued its upward trajectory in the first quarter of 2017, with a total of 210,502 sq ft of floor space leased, pushing the figure ahead of the five-year quarterly average and 22% higher than the same period in 2016.

However, activity was dominated by the out-of-town market, which accounted for 84% of the total volume of space transacted. While this was due, in part, to the increased volume of transactions in the out-of-town market – some 50% higher than the same period in 2016 - the city centre’s dearth of grade A stock and lack of demand from larger corporates is holding the market back somewhat.

Unless landlord’s adopt a proactive approach and refurbish existing stock to a much higher standard than is currently available there will be very little interest accrued from occupiers going forward. 

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In this issue:

Occupier activity continues an upward trajectory despite weak city centre performance

Newcastle’s office occupier market continued its upward trajectory in the first quarter of 2017, with a total of 210,502 sq ft of floorspace leased across the city centre and out-of-town, pushing the figure ahead of the five-year quarterly average and 22% higher than the same period in 2016.

Activity was dominated by the out-of-town market, which saw the total number of transactions rise by 50% on the same period in 2016 to 39, accounting for 84% of the total volume of space transacted.

While the city centre is facing a dearth of grade A stock, with only one letting during Q1 2017 greater than 10,000 sq ft there is also a clear lack of demand. With very few requirements in the market from major corporates, this is likely to temper the H1 take-up figures somewhat.

Key occupational transactions, Q1 2017


Property 

Size (sq ft) 

Landlord(s)/ vendor

Tenant/purchaser

6 Admiral Way, Doxford
33,600
Unknown
Durham Police

St Nicholas Building
19,200
Laidlaw Estates

Frank Recruitment Group
Cobalt 21, Cobalt Business Park
12,294
Highbridge Properties
Newcastle Systems Management

Source: Lambert Smith Hampton

Jaywing

Jaywing

City centre office supply falls to lowest level in five years

Grade A office supply across Newcastle city centre continues to dwindle, albeit at a slower rate than anticipated, and currently stands at c.155,000 sq ft – a fall of 11% from the previous quarter.

The only letting of grade A specification in Q1 2017 was 19,200 sq ft at the St Nicholas Building to Frank Recruitment Group.

New refurbishment schemes previously in the pipeline have encountered problems or are now being converted for alternative use, including:

  • Riverview, Newcastle Quayside – the 45,000 sq ft former BT building which was planned for refurbishment to grade A office accommodation is now being converted to provide additional hotel accommodation down by the Quayside.
  • The Blundell Building, 36 Clayton Street – the 30,000 sq ft former Department Store had plans for redevelopment and conversion into office accommodation.  This has now been refused planning permission, albeit, we are of the understanding there are intentions are to reapply for change of use.

St Nicholas Building achieves new headline rent for grade B+ space

Prime headline rents in Newcastle city centre remain at £23.00 per sq ft, set in Q2 2016.

However, the 19,200 sq ft letting to Frank Recruitment Group at the recently refurbished St Nicholas Building set a new headline rent for grade B+ accommodation at £20.50 per sq ft.

Incentives are starting to drift out to 9-12 months’ rent free for a five-year term.

Lack of stock hampers investment volumes

Despite a healthy demand from potential purchasers, the office investment market in Newcastle is characterised by a lack of good quality stock, which has impacted on transaction volumes.

As a result of the pent up demand, together with the continued low interest rates and a lack of alternatives, well-let buildings with solid unexpired lease terms are likely to attract significant interest.

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Michael Downey
Surveyor - Capital Markets

0191 338 8326

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Michael Downey
Senior Surveyor - Office Advisory BSc (Hons) MRICS

0191 338 8326

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