Market snapshot

Office Market Pulse Newcastle Q3 2015

Newcastle city centre witnessed its strongest quarterly take-up over the last two years, underpinned by three significant lettings; namely 15,155 sq ft to Orchard Systems at Central Square, the sale of Block B at Kings Manor to Adderstone, and the letting at Haymarket Hub of 17,000 sq ft to Ubisoft.

With several major requirements due to be satisfied in Q4 2015, Newcastle's combined city centre and out-of-town markets remain on track to exceed the 800,000 sq ft transacted in 2014. However, with strong interest in the Rocket (now completed), leaving Live Works (14,320 sq ft) as the only building currently under construction, grade A supply is rapidly diminishing. In the absence of any speculative development proposed for the immediate future, landlords are now turning their attention towards the refurbishment of grade B space.

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In this issue:

Strongest city centre office take-up for two years

The combined Newcastle city centre and out-of-town markets recorded a total take-up of 266,582 sq ft in the third quarter of 2015, compared with a similar figure of 266,660 sq ft in the same period of 2014.

The average deal size across both markets for Q3 2015 was 7,015 sq ft – an increase of 13% compared to the average figure for Q3 2014.

At 107,819 sq ft, the city centre witnessed its strongest quarterly take-up over the last two years.  This was underpinned by three significant lettings – 15,155 sq ft to Orchard Systems at Central Square, the sale of Block B at Kings Manor to Adderstone, and the letting at Haymarket Hub of 17,000 sq ft to Ubisoft.

Activity in Newcastle’s out-of-town market remained broadly in line with Q3 2014, with a take-up figure of 158,763 sq ft.

With several major requirements due to be satisfied in Q4 2015, Newcastle's combined city centre and out-of-town markets remain on track to exceed the 800,000 sq ft transacted in 2014. 

Landlords turn attention to refurbishments as Grade A supply continues to fall

Grade A office supply in Newcastle city centre fell to just 120,000 sq ft in Q3 2015 and accounts for just 13% of the total city centre availability.

With a further 22,000 sq ft currently under offer and one quarter remaining, the supply of grade A space is likely to drop below 100,000 sq ft by the end of the year.

With strong interest in the Rocket (now completed) and no further speculative development proposed for the immediate future, landlords’ focus is now turning towards the refurbishment of grade B space.

Key occupational transactions, Q2 2015


Property 

Size (sq ft) 

Landlord / Vendor

Tenant / Purchaser

Central Square
15,155
Parabola Estates
Orchard Systems
Block B Kings Manor 
18,333
Receiver
Adderstone
Haymarket Hub
17,000
Zonat Ltd
Ubisoft
1 Central Parkway
10,000
Network Rail
Durham Careline

Source: Lambert Smith Hampton 

Prime rents to rise to £22 per sq ft by the end of Q4 2015

Prime rents remain at £21.50 per sq ft, but it is widely anticipated that the figure will rise to £22 per sq ft during Q4 2015.

The Rocket is likely to set a new headline rent in the next 3-6 months, at a figure of £23 per sq f, with strong interest in the whole building from a single occupier.

Out-of-town rents have remained at £16.25 per sq ft, with the recent letting of 57,095 sq ft to Accenture at Cobalt Business Park.

Investment activity picks up as value gap between London and the regions increases

The value of office investments transacted across Newcastle during Q3 2015 totalled £22.95m – more than double the volume of the same quarter in 2014.

This burgeoning level of interest is driven by Newcastle’s improving occupational market, and the ever-increasing yield gap between London and the regions, which now represents solid growth potential.

View the latest edition of our UK Investment Transactions (UKIT) report.

Key investment transactions, Q2 2015


Property 

Value (£m) 

Investor

Vendor

Cobalt 12, Cobalt Business Park, Newcastle
16.75
Private individual
Henley Estates
34/40 Gainsborough House, Newcastle
3.58 Lumina Real Estate Capital
West Sussex CC Pension Fund
Team Valley Trading Estate, Gateshead
2.63 Drum Income Plus REIT
Praxis Asset Management

Source: Lambert Smith Hampton 

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