Member Article

Newcastle office market divided as investment declines

The Newcastle office market’s performance looks set to be divided this year, according to new research by BNP Paribas Real Estate, the leading property adviser. Whilst 2013 city centre take-up has had a slow start, the out of town market is expected to perform better, with take-up matching last year’s level.

BNP Paribas Real Estate’s Aidan Baker, director of Newcastle office agency, comments: “As the year progresses, Newcastle has the potential to attract the growing number of investors priced out of London and looking for opportunities to secure higher returns in key UK regional centres. The investment market remains dominated by investors either seeking prime assets with long term income or assets with short to medium term income with asset management opportunities.”

Looking forward, Grade A city centre availability will continue to tighten with several large requirements likely to secure space during the course of 2013. The out of town market will continue to remain well supplied with a wide array of grade A space available.

Headline rents are expected to plateaux in both the city centre and out of town markets during 2013. However, there is the potential for a small rise in city centre headline rents in 2014, as a result of improving conditions in the UK economy and ongoing falling city centre grade A supply levels.

Joanne Warren, associate director within BNP Paribas Real Estate’s research department, comments: “2013 has seen the office market in Newcastle get off to a promising start, driven by stronger demand in the out of town market. Total Q1 2013 take-up reached 169,105 sq ft, slightly ahead of the 149,786 sq ft transacted in Q4 2012. Over the six month period to the end of Q1 2013, city centre take-up was down 61% compared to the previous six month period. The out of town market saw the reverse trend, with take-up for the six month period to the end of Q1 2013 up 59% on the previous six months. Occupiers taking out of town space have been attracted to higher quality stock, reflecting the excellent level of grade A supply and favourable deals still available in this submarket.”

During the six month period to the end of Q1 2013, 62% of out of town deals transacted were for grade A space. During the same period no grade A space was let in the city centre. The grade A city centre availability level is gradually declining, with 367,273 sq ft available at the end of Q1 2013, down 8% from 400,000 sq ft in Q1 2012. At 1.2m sq ft out of town grade A availability remained high at the end of Q1 2013.

“During the course of 2012, Newcastle was one of the few regional office markets to see a significant rise in its grade A supply level, with 134,300 sq ft of new speculative space completed at Quorum Business Park last year. This was further topped up with the completion of 72,100 sq ft of new speculative space at Cobalt Park during the six month period to the end of Q1 2013,” added Baker.

For more than three years, the Newcastle city centre headline rental level has remained unchanged at £20.00 per sq ft. currently, tenant incentives remain prevalent, with tenants typically looking to negotiate three years rent-free on a straight 10 year term. Newcastle out of town headline rents have decreased marginally to £16.50 per sq ft; the level maintained at Cobalt Park.

This was posted in Bdaily's Members' News section by Graham Vincent .