Activity surge in all areas of the North East commercial property sector

Danny Cramman and Tony Wordsworth review market activity within the North East industrial and office sectors

Office space aims to provide a catalyst for regeneration of the Stephenson Quarter in Newcastle
An artist's impression of the Stephenson Quarter in Newcastle

A surge is activity in all sectors of the commercial property sector has increased in the past quarter.

On the industiral front, GVA along with other industrial agents active in the North East, are concerned with the shortage of supply of “Big Sheds” as a result of increased demand/ take up of space and the lack of new build development activity in recent years.

The latter part of 2013 saw a significant shift in the big sheds and industrial market place. There was a notable upturn in confidence and this has filtered through to a pick-up in occupier demand, particularly for well-located good quality industrial product.

With little or no speculative development having taken place for the past five years, this has led to a situation where there is a shortage of stock across most size ranges.

There is currently a shortage of buildings in the 100,000 sq ft plus size range, with only a handful of new or good quality secondary industrial buildings available across the whole region.

There has been a good level of demand/take up from both the logistics and manufacturing sectors over the past two years which has led to the current shortage of buildings.

GVA expect demand during 2014 to continue to be strong. It is likely that the lack of available stock will restrict the options available for potential occupiers and will inevitably lead to a rise in design and build projects on a pre-let basis.

There is a strong level of activity in both the logistics and manufacturing sectors centred around Nissan’s expansion and within the green energy, carbon reduction and off shore renewable sectors.

Other recent developments such as Hitachi Trains building their new train assembly facility in Newton Aycliffe will also potentially lead to an increase in demand for space when their supply chain builds up across the region.

In the offices sector, Newcastle like many other provincial city centres is tottering on the edge of the tipping point in terms of the balance of supply and demand of Grade A office space in the city centre.

GVA’s research concludes that supply levels – and a lack of pipeline development – have reached a seriously low level capable of both slowing down and damaging future take up rates.

Over recent years the severe economic recession along with government spending cut backs certainly slowed the pace and volume of new office building within the city.

The best news Newcastle and Gateshead councils have received for many years from Central Government is the City Deal which has secured £92m of investment.

The leading office agents in Newcastle review the take up of space both within the city and on out of town business parks on a quarterly basis. The agreed annual take up figure for the city centre in 2013 amounted to 267,853 sq ft, the highest take up of space since 2008.

Ground works and a first phase development have progressed at Science Central which is being developed by Newcastle City Council and Newcastle University on the 24-acre former Scottish and Newcastle Brewery site, funded by the Regional Growth Fund, European Regional Development Fund and further new funding as part of the Newcastle City Deal.

Silverlink Holdings backed by the city council and the North East LEP have also commenced construction works at the 10 acre Stephenson Quarter between Central Station and the Quayside.

The first phase of development includes a 250-bedroom four-star Crown Plaza Hotel a 35,000 sq ft office block and a multi-storey car park in a scheme backed by the city council.

One key observation by GVA in terms of future availability is the removal of a significant number of traditional office blocks from the market place as a result of change of use. This further exacerbates the supply chain concern and removes office stock from the market place.

The former Scottish and Newcastle Brewery office block (55,000 sq. ft.) at Gallowgate was converted to the Sandman Signature Hotel. Similarly, Eagle Star House (51,000 sq ft) on Fenkel Street now operates as the Indigo Hotel and Barron House (70,000 sq. ft.) opposite the Central Station is also being converted and extended as a Hampton by Hilton hotel.

Conversion of existing office stock to student accommodation is also a further challenge to the supply pipeline as developers / investors re-appraise their property portfolios.

Hopefully, the supply pipeline of new offices can be accelerated or at least maintained within the city centre to ensure future development, investment and letting activity on key urban core sites. Newcastle could be facing the “tipping point” before the end of 2015 which may encourage investors, developers and their funders to bring forward new office product assisted by “pump priming” backing through the City Deal and the North East LEP.

:: Danny Cramman and Tony Wordsworth, Industrial and Office Agency, GVA, Newcastle


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