Peter Bowden, Head of Office at Knight Frank Newcastle, shares his thoughts on the North East commercial property market and tells us why there are reasons to be optimistic.
I get asked a lot about how the market is going to react and adapt to the challenges of a slow economy, Brexit and the lack of prime space in the region. And my answer is this. Economic growth is still positive and there are still opportunities to be had.
Our forecast for economic growth in 2018 is 1.5% which, although below the 20-year average of 2%, it is still progressive. Yes, there’s uncertainty around Brexit. And that, inevitably, brings caution into the market. But because there is still demand from the growth sectors, and because the region lacks good quality office and industrial stock, rents are driving upwards, speculative industrial development is back on the agenda and landlords can get better returns by investing cleverly in their buildings.
Sheds demand is rising
Statistics show there is around 4.2m sq ft. of industrial space currently available in the North East. However, only 485,000 sq ft. of that space could be considered modern. This lack of supply is already pushing rents up and for the first time in a long time, speculative large sheds could be set to make a comeback.
Nissan’s current tendering for suppliers has given some hope to developers and owners of large factories that 2018 could be a good year. Although, of course, we have yet to see how many of these companies eventually secure contracts and take space.
The letting of UK Land’s new build 57,000 sq ft. unit on Tyne Tunnel Trading Estate was a notable deal in the latter half of 2017. The unit was let during construction at a rent of £6 per sq ft. And the speed it went under offer in the first month after construction began has potentially given encouragement to other developers sitting on planning permission for larger units.
The industrial market is proving to be resilient. We expect to see continued enquiries in the sub-10,000 sq ft. range and a continued steady demand for larger units around the 50,000 sq ft. to 150,000 sq ft. mark.
Office opportunities
When it comes to offices – rents and lease lengths have not yet reached a level where new development, without some form of public sector support, is viable.
However, we go into 2018 with around 170,000 sq ft. of Grade A office space available and, we believe, around 250,000 sq ft. of active city centre requirements. So more rental growth is on the horizon.
The smart landlords are refurbishing their offices to meet the rapidly changing requirements of occupiers. Inspiring, contemporary spaces are leading the way. Landlords are realising the need to provide amenity rich, highly serviced spaces which, together with the occupiers fit out, serve to aid talent attraction and retention.
A shining example of this is Earl Grey House, a 58,000 sq.ft Grade II listed mixed-use building in Newcastle city centre. This pioneering refurbishment that turned convention on its head to deliver innovative space distinct from the usual Grey Street style has set new headline rents for Grey Street.
Barclays House, also on Grey Street, will deliver a significant refurbishment in the next few months, further enhancing the offer to occupiers who are demanding so much more from their office space.
Inward investment
And finally, our region is on fire when it comes to being a prime location for inward investment projects. This is a very real opportunity for the North East. Our competitive cost base, skilled labour pool, strong universities and the availability of high quality office space such as that at Quorum Business Park are all key ingredients, particularly to compete for ‘North Shoring’ opportunities.
Peter Bowden can be contacted at peter.bowden@knightfrank.com 0191 594 5003.
