Member Article

Regional property market has ‘reasons to be cheerful’

The North East regional commercial property and construction sectors are both in good heart despite underlying Brexit concerns.

On one hand there is an active offices sub sector with a new rental tone being established in the historic Grainger Town’s Grey Street, Newcastle, and significant refurbishment and upgrading taking place elsewhere in the city with a new high of £25 per sq ft being sought.

Further Legal & General is about to go on site with its first phase of office space in Science Central which adjoins the Gallowgate/St James’ Boulevard Quarters. This is supported by Newcastle City Council which has already had successful involvement in city centre development in the Stephenson Quarter that was instrumental in attracting Convergys’ call centre with 600 jobs.

However compared with the two major Scottish cities, the key locations within Northern Powerhouse and principal cities elsewhere in the UK, Newcastle city centre has no supply of new Grade A office space and presently nothing under construction.

The city’s prime rent is £23 psf and the lowest compared with 10 UK locations including London’s City and West end markets. However Knight Frank says rents are expected to go above £23 psf in 2018.

This is making Newcastle’s city centre an attractive location with an £38 per sq ft occupational cost as well as an available quality workforce stemming from its excellent senior, independent, schools and its two universities. Typically 7,000 sq ft would cost £266,000 a year whereas in Manchester the cost would be £357,000. In London’s West End it would be over £1.1m per annum, a strong argument for ‘North Shoring’.

But without available office space it is felt Newcastle is at a disadvantage when it comes to attracting inward investment, an ‘achilles heel’ with rents hardly changing making development of new build, Grade A space marginal if not unfeasible. It’s not built just for inward investment but not having it available does make inward investment a challenge when most of these projects are looking to existing stock.

Such a conundrum has created an opportunity for the imaginative refurbishment of office space in the city’s Grainger Town. Stylish space behind spectacular frontages with relatively small floor plates is attracting growing tech companies as well as the professional sector. The success is forcing rents upwards.

There are several projects in the pipeline just waiting for the ‘green light’ but with uncertainty and no clear vision of the immediate future, caution is route one as developers and investors are not prepared to take risks.

Newcastle, with its city culture, attractive hinterland and excellent communications, is a regional capital. It needs to reinforce its attractions as a place to live and work and widen its boundaries, not be restricted by Local Authority boundaries but widen the scope to show what an outstanding part of the world the North East is and what a strong location Newcastle upon Tyne is.

There are reasons to be cheerful despite the uncertainty of Brexit which to some extent has ‘cursed’ projects. There are signs of smaller schemes being reappraised as existing businesses seek to grow. One unforeseen Brexit trend is for overseas suppliers to take space to service UK customers.

Though this commentary focuses on the offices sector, industrials has had a strong year with competition at times for stock. Two regional sites have been short-listed for the Heathrow logistics project. The price-sensitive hotel product is very much in demand with hotels reporting full to capacity on a regular basis.

Source: From a round table discussion organised by the Bank of England’s North East Agency as part of its regular dialogue with the region’s business community. Held at Knight Frank’s regional head office, senior representatives of Metnor Group, Cushman & Wakefield, Knight Frank, Turner & Townsend; Union Property Services, the Civil Engineering Contractors Association, UK Land Estates and Broadoak Asset Management were present. Commentary written by Chris Dobson.

This was posted in Bdaily's Members' News section by Chris Dobson .