Market snapshot

Office Market Pulse Newcastle Q2 2017

Office occupier take-up across Newcastle’s city centre and out-of-town markets was subdued during the second quarter of 2017, with just under 130,000 sq ft let; reflecting a fall of 31% from the equivalent period last year and some 38% below the five-year quarterly average.

This poor performance was largely attributable to the out-of-town market, which saw 44% fewer transactions than the previous three months resulting in its lowest quarterly take-up since Q3 2010, at just 88,190 sq ft. Activity in the city centre however, was up 23% on the previous quarter.

There is approximately 12 month’s supply of grade A space available across Newcastle city centre and, while Legal & General has submitted a planning application for the first of its 100,000 sq ft grade A offices, these are at least two years away from fruition. The lack of good quality stock within the city centre is therefore likely to restrict H2 take-up figures somewhat.  

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In this issue:

Take-up falls to its lowest level for seven years

Office occupier take-up across Newcastle’s city centre and out-of-town markets was subdued during the second quarter of 2017, with just under 130,000 sq ft let; reflecting a fall of 31% from the equivalent period last year and some 38% below the five-year quarterly average.

This poor performance was largely attributable to the out-of-town market, which saw 44% fewer transactions than the previous three months resulting in its lowest quarterly take-up since Q3 2010, at just 88,190 sq ft. Activity in the city centre however, was up 23% on the previous quarter.

The market was driven by companies within the TMT sector, accounting for 35% of space let, suggesting a resurgence for this once-strong sector of the region’s economy.

The average deal size was 4,458 sq ft, with the three largest deals accounting for over 56% of the total take-up. 

Key occupational transactions, Q2 2017


Property 

Size (sq ft) 

Landlord(s)/vendor

Tenant/purchaser

Spectrum 5, Seaham
26,000
Hillford Group
Northumbria Water
1st and 4th Floors, No 2 St James Gate
21,261
McAleer and Rushe
Eldon Insurance
Baltic Place, South Shore Road, Gateshead
9,426
Southshore Developments
Northern Gas & Power

Source: Lambert Smith Hampton

Grade A supply continues to tighten

There is currently less than 150,000 sq ft of grade A office space available to let across Newcastle city centre which, if occupier take-up continues at its current rate, will vanish within 12 months.

Some grade A sub-let space has come back to the market as businesses look to reduce their size requirement and utilise modern working practices. Legal & General has also submitted a planning application for the first of its 100,000 sq ft grade A offices. However, with at least two years until this comes to fruition, the lack of good quality stock within the city centre is likely to restrict H2 take up figures somewhat. 

The out-of-town office market remains well supplied and is therefore extremely competitive.  

Rental growth forecast for H2 2017

Prime headline rents across Newcastle city centre remained stable for the fourth consecutive quarter. However, H2 2017 is likely to see a new headline rent, with both Central Square South and Wellbar Central well positioned to command a rent north of £23.00 per sq ft.

Incentives remain at 9-12 month’s rent free for a five-year term.

Robust investment performance despite subdued occupational market

Newcastle’s office investment market performed reasonably well in Q2 2017 given the relatively subdued amount of activity in the occupational market. 

The general theme is that there is a continued lack of stock, yet good quality product has considerable demand, particularly where unexpired terms are in excess of 10 years. 

Availability of stock is unlikely to increase for the remainder of the year and therefore any product which comes onto the open market will continue to be in demand.

Key investment transactions, Q2 2017


Property 

Value (£m) 

Yield (%) 

Purchaser

Vendor

Barratt House, The Watermark
3.65
6.68
FWRE

Wilson Bowden Developments
Television House, The Watermark
1.9 9.8 Palladium Group
Undisclosed
Cobalt 23, Cobalt Business Park
Undisclosed
Undisclosed
Moorfield Group
Receiver
 18-24 Grey Street
Undisclosed  Undisclosed  Stessa Commercial
 Undisclosed 

Source: Lambert Smith Hampton

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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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