Our latest Newcastle Office Market Pulse also revealed a flight to quality in the city centre, with several prime transactions, including Turner & Townsend’s letting at Time Central, Gallowgate and Tangent plc’s letting at Earl Grey House further consolidating the £23.50 per sq ft headline rent set in the previous quarter.
The picture is equally positive in the out-of-town market, with a notable increase in the number of transactions for space upwards of 5,000 sq ft, three of which took place at Quorum Business Park. Nevertheless, transactions of sub-5,000 sq ft continued to dominate the out-of-town market, with around 83% of deals falling into this category during Q1.
Grade A supply continues to tighten as a result of the recent flight to quality, with approximately 110,000 sq ft available across the city centre. This figure is expected to fall below 100,000 sq ft by the end of 2018. Consequently, occupiers seeking substantial amounts of grade A office space will be faced with limited options. In stark contrast, grade A supply within the out-of-town market remains plentiful.
The shortage of grade A space in Newcastle city centre has had an upward effect on rental growth and squeezed incentives on primary and secondary stock, with headline rents expected to rise from £23.50 per sq ft to £24.00 per sq ft by the end of 2018. Out-of-town, prime rents remained stable at £16.50 per sq ft.
Michael Downey, Senior Surveyor at LSH’s Newcastle office, commented: “While the market has clearly got off to a strong start, with a strong level of enquiries and positive messages heading into the second quarter, the emerging imbalance between supply and demand is likely to temper activity towards the end of the year, as existing supply is removed from the market.”
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