Offices space take up in Newcastle city centre fell by more than a quarter in 2014 as the struggle to offer prime business space threatens to reach critical levels.
Overall, take-up was 14% higher than the five year average in 2014 at 722,000sqft according to the research from property adviser BNP Paribas RealEstate, but that figure was 8% down on the previous 12 months.
Aidan Baker, head of business space at the firm’s Newcastle office said the office market, in central and out-of town locations, has seen transactional volumes slowly recovering since 2010.
But the continuing shortage of Grade A space in the city centre was reflected in low transaction numbers.
Mr Baker said: “The out-of-town market had a good year with take-up standing at around 546,000sqft, which was virtually unchanged on 2013’s figures.
“Cobalt Business Park witnessed the largest transaction in the North East since 2009 with Utilitywise Plc taking 77,632sqft on a 15-year lease at Cobalt 22 at a rent of £16.25 per square foot.
“Siemens also signed a five year lease for 39,200 sq ft at Cobalt 9B.
“The ongoing shortage of significant sized Grade A space within the city centre was reflected by the lack of transactions in 2014. There were only two deals of over 20,000 sq ft, with Newcastle University taking 34,134sqft at 89 Sandyford Road and Teleperformance signing for 28,300sqft at Baltic Place.
“Total take-up in the city centre was just 177,000sqft a fall of 26% on 2013.
“With only approximately 150,000sqft of Grade A space currently available in the city centre, and the supply of new accommodation over the next 24 months remaining restricted, upward pressure on rents will be maintained.”
BNP Paribas Real Estate’s research showed that annual rents remained at £21.50 per square foot for prime space but with new developments quoting £22.00 per square foot the indications are that further upward pressure on rents during the coming months is likely.
The report also reveals that investment volumes began to rebound, standing at £121m which was well above the five-year average and represented a 230% increase year-on-year. UK Institutions and fund managers were the most active buyers.
Standard Life acquired one of the two buildings at Central Square South in 2014 for £21.5m at a yield of 7.61%, while the BBC Pension Fund agreed to buy Time Central at Gallowgate from Credit Suisse for £24.68m.
Mr Baker added: “Investment rational has been driven by the lack of supply in the market, with no significant speculative activity the limited Grade A space has strengthened investors’ appetite for Newcastle’s assets.
“This has been more prominent in the city centre where the lack of top quality space is most acute.
“While UK institutions remain the top investors and accounted for over 70% of the volume of office deals last year our report highlights that overseas buyers are considering the region, which has relatively high yields when compared to the other key regional cities.
“We could see investors keen to strike deals whilst prices are still comparatively cheap.”