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2013 North East commercial property market review and 2014 preview from DTZ in Newcastle

Experts at DTZ in Newcastle review the 2013 commercial property market and look ahead to 2014.

Office Market

‘Take-up in Newcastle city centre exceeded the five-year average’ – Tony Hordon, Head of DTZ’s Newcastle office comments:

“There is no doubt the year 2013 has seen an improvement in market conditions and the general movement of occupiers. The likelihood is 2013 will see a Newcastle city centre take-up level exceed the five-year average take-up of 150,000 sq ft. Take-up will exceed 230,000 sqft which is supported by some particularly newsworthy transactions. Transactions including PWC and Barclays Bank, who acquired 23,000 sq ft and 35,000 sq ft respectively were important milestones in the market as in many ways it provides an indication of ‘confidence’.

“Perhaps more importantly, however, is the cross-section of the take-up, when in previous years we have seen the average size of enquiry under 5,000 sq ft. There has been a marked increase in the size of occupiers acquiring office space.

“As take-up continues at a healthy level, the next challenge will be the availability of stock within the city centre as we only have some 12 months supply of “Grade A” accommodation.

“Newcastle city centre, unlike many other regional cities, did not have an abundance of supply of Grade A space going into recession. In addition, whilst in a recession, there has not been a great deal of accommodation actually returned to the market. This will, therefore, provide the city with a number of challenges and an obvious lag of developer delivery behind occupational demand when you consider the lead times with planning, finance, development and delivery.

“Given the lack of stock, this will inevitably lead to a hardening of incentives and rental growth with perhaps our city performing better than most.

“In terms of the out of town market, these are of course very different dynamics with a large supply predominantly delivered by the Enterprise Zone business parks, namely Quorum Business Park and Cobalt Business Park. Both business parks, however, have an excellent quality of stock with outstanding demographics and a very compelling financial solution.

“The likelihood that these parks, given their maturity and all-important critical mass and outstanding amenity value, will perform and hopefully providing further jobs to the region.

“When reflecting on 2013, it has been a year of improvement, however, this improvement whilst encouraging, will inevitably lead to further challenges, certainly in the city centre, through the lack of stock – it will be those developers who are innovative in their approach to delivering solutions, who will reap the rewards of this window in the market.”

Industrial Market

‘A positive year, providing optimism for 2014’ – Chris Donabie, Head of North East Industrial and Logistics at DTZ in Newcastle, offers his thoughts on the outlook for the industrial market in 2014:
“2013 has been another encouraging year in the industrial market with strong take-up and continuing positive sentiment providing much optimism for the coming 12 months. DTZ track industrial take-up and availability of premises of 50,000 sq ft and above and note particular activity in the manufacturing, engineering, offshore and distribution sectors.
“Of the larger transactions this year, around half were sales, highlighting a welcome increase in bank lending to owner-occupiers. There are now only four large Grade A buildings available in the North East equating to approximately 700,000 sq ft. One building is under offer, with serious interest reported in the other three.

“Despite a dwindling supply of prime buildings, new build activity remains muted with no speculative development of large sheds, although encouragingly there is now speculative activity in the smaller sub 10,000 sq ft bracket for the first time in over five years. A large element of funding for these schemes is reportedly from the public sector, which is helping to plug the gap in bank lending for small-scale development.

“The outlook for the UK economy is positive, with the North East’s strengths in manufacturing and engineering expected to translate into further occupier activity. Demand is likely to outstrip supply of Grade A and good Grade B buildings of all sizes in key locations around the region, maintaining upward pressure on rents.

“Despite a lack of large speculative development, there should be pockets of ‘build to suit’ development of larger sheds in 2014 centred around key locations such as the A1 (M) and A19 corridors close to Washington and Gateshead, the new Hitachi Rail plant at Merchant Park in Newton Aycliffe and possibly the north banks of the River Tyne. Occupier sectors showing interest in this type of opportunity include offshore, manufacturing and third-party logistics.”


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