Newcastle city centre office market: 70% year on year increase in office take-up

Technology, media and telecommunications (TMT) firms have played an increasingly prominent role, with a greater number of deals in 2013 than finance, banking and insurance firms, says Knight Frank in its latest Newcastle city centre office market report

Commercial property on Newcastle's Quayside
Commercial property on Newcastle's Quayside

Technology, media and telecommunications (TMT) firms have played an increasingly prominent role, with a greater number of deals in 2013 than finance, banking and insurance firms, says Knight Frank in its latest Newcastle city centre office market report.

And Knight Frank confirms the success of 2013 with a 70% year-on-year increase in office take-up despite a subdued last quarter to the year.

Supply of Grade A space remains an issue especially as the buoyant year led to a 26% reduction in Grade A supply.

Patrick Matheson, partner, office agency at Knight Frank, says supply of Grade A space in the city centre and Gateshead Quays currently stands at around 190,000sq ft, with Baltic Place (80,000sq ft), Wellbar Central (39,000sq ft) and Hermes Real Estate’s recently refurbished ‘The Pearl’ (38,000sq ft) accounting for the greatest proportion of availability.

He says: “The supply crunch has yet to reach a critical phase, leaving prime headline rents unchanged at £21.50 per sq ft. Incentive packages also remained broadly steady throughout 2013, with net effective rents standing at around £17.50 per sq ft at the year-end.”

Matheson adds: “With the increase in office inquiries over Q4 2013, we anticipate the first half of 2014 will experience continued strong occupier activity. “

The overriding concern in Newcastle is the lack of development activity in the city centre.

“With only one new-build scheme on site, the pipeline is particularly limited.

“As the overall economy improves in the North East, Newcastle’s city centre could be faced with an acute shortage of Grade A space.

“Headline rents may not rise in the short-term, but we expect rental incentives to begin to tighten as supply diminishes.”

Dickon Wood, partner, investment at Knight Frank says following subdued activity in 2012, when Newcastle saw only two deals in the city centre, activity rebounded in 2013, with transaction volumes reaching £67.75m, more than six times the 2012 total.

“The majority of investment activity was seen in Q4 with £42.9m of deals transacted.

“This included the largest deal of the year, which saw Orchard Street Investment Management purchase Time Central for £24.68m from Credit Suisse Asset Management, reflecting an equivalent yield of 6.15%,” says Wood.

“The sale of Time Central provided evidence of a record yield for the new market cycle in Newcastle. Prime yields declined by 75 basis points over 2013, to stand at 6.25% at the year-end.

While investment turnover was relatively robust in 2013, there continues to be limited availability of prime investment stock, with the majority of lease expiries standing close to five years.

“The secondary investment market has been heavily impacted by the lack of quality stock.

“However, with the occupational story improving, deals are more likely. Notably, the Haymarket Hub has received renewed interest, valuing it at £9m, a net initial yield of 9.5%”.

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