Market snapshot

Newcastle Office Market Pulse Q4 2016

Occupier take-up across Newcastle totalled 191,624 sq ft in the final quarter of 2016, 11% up  on the previous quarter and 4% up on Q4 2015. This was largely due to city centre letting activity rebounding in spectacular style, outperforming the out-of-town market for the first time in several years.

Consequently, grade A office supply in the city centre has continued to dwindle and, with only 43,000 sq ft remaining at Central Square South and no new development expected until at least 2019, the focus will increasingly turn to refurbishment of existing buildings to satisfy any latent demand.

Prime headline rents in the city centre remain at £23 per sq ft, set in Q2 2016. However, we would expect a new headline rent to be set in 2017, as a result of the increasing shortage of grade A supply.

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In this issue:

City centre outperforms out-of-town market for first time in several years

Occupier take-up across Newcastle’s city centre and out-of-town office markets combined totalled 191,624 sq ft in the final quarter of 2016, 11% up on the previous quarter and 4% up on Q4 2015. This was largely due to city centre letting activity rebounding in spectacular style, outperforming the out-of-town market for the first time in several years to reach 98,733 sq ft – the highest city centre take-up recorded since Q3 2015.

Conversely, letting activity in the out-of-town market fell back by more than 30% in Q4 2016, to reach 92,891 sq ft.

City centre demand continues to remain buoyant – albeit, the lack of quality stock is such that it unlikely to be satisfied, particularly larger requirements for floor plates of over 10,000 sq ft.

Key occupational transactions, Q4 2016


Property 

Size (sq ft) 

Landlord / Vendor

Tenant / Purchaser

Weardale House, Washington
26,000
Cashlong Group
Confidential 
Open University Building, Baltic Business Park
19,543
The Open University 
Gateshead Council
9th 10 and 14th Floors, Cale Cross House
12,875
Undisclosed
Regus 

Source: Lambert Smith Hampton 

Focus turns to refurbishments

Grade A office supply in the city centre continues to dwindle, un-helped by the strong Q4 city centre take-up figures. With only 43,000 sq ft remaining at Central Square South and no new development expected until at least 2019, there will be very little in the way of grade A space left in the city in the interim.

The focus will increasingly turn to refurbishment, with schemes in the pipeline including Riverview; the 25,000 sq ft former BT building currently being considered for office refurbishment, and The Blundell Building, 36 Clayton Street; a 30,000 sq ft former department store built behind a Georgian façade now being redeveloped.

Headline rents to rise as grade A shortage intensifies

Prime headline rents in the city centre remain at £23 per sq ft, set in Q2 2016. However, we would expect a new headline rent to be set in 2017, as a result of the increasing shortage of grade A supply.

Incentives remain stable at 6-9 months’ rent free for a five-year term.

Changeable year for Newcastle’s office investment market

The last 12 months have been somewhat changeable for Newcastle’s office investment market, finishing 2015 and going into early 2016 with some high quality completions, as evidenced by the sale of Wellbar Central and Central Square North at just over 6% NIY.  After that, there was a dearth of transactions until the sale of Sandgate House on Newcastle Quayside at 5.88% NIY based on a 15-year lease to solicitors Ward Hadaway. Long-term income is highly sought after, hence the interest. 

The year finished better than it started and the final quarter showed increased volumes, with the completion of several transactions, albeit of relatively low value. 

Demand continues to outstrip supply and there is a suggestion of a few respectable entries into the market in the first half of 2017.

Key investment transactions, Q4 2016


Property 

Value (£m) 

Yield (%) 

Investor

Vendor

Sandgate House, Quayside
10.75
5.88
Rougemont Estates
Legal & General Property


Source: Lambert Smith Hampton

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0191 338 8306

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