An overview of the commercial property market in Newcastle

It was only a year ago that Newcastle was identified as a "super city" for business and one of the urban centres with more potential for future growth in the northeast of England. Over the past four years, there have been several blue-chip companies involved in the science and technology fields that have chosen Newcastle as their base, and this fact has had an inevitable positive effect on the commercial property market in the city. Several business parks have been built in the so-called Enterprise Zone, which has resulted in investment for the value of £200 million.

Take-up rates across all sectors of the commercial property market have been slowly recovering from the slump experienced in 2009, when they reached an all-time record low of 500,000 square feet.

Investment yields have remained more or less stable across all sectors and average annual values of 4.75 per cent. Overall, the commercial property market in Newcastle is classified by investors as a "warm" market, having a relatively good number of opportunities and good chances of experiencing rental growth.

Office space in Newcastle

The latest market data published by property advisors at BNP Paribas Real Estate show that during the third quarter of 2012, take-up rates rose by 10 per cent. The current take-up rates total 482,610 square feet of office floor space. Almost 70 per cent of this figure belongs to take-up rates in out of town locations, as only 140,000 square feet were taken up in the city centre during the last quarter. In fact, the city centre market has shrunk by 18 per cent in just one year. The preference for out of town stock reflects the demand from occupiers involved in research, science, and technology that typically require very large floor plates to accommodate their operational needs.

Despite low take-up levels in the city centre, another notable trend concerns the increased amount of Grade A office space taken up within the city. Researchers believe that the 25 per cent increase experienced is mostly due to the enhanced incentives offered by landlords, which can include up to three rent-free years on longer leases of 10 years and more. As of September 2012, the total availability of Grade A office space in Newcastle was estimated at 1.58 million square feet.

Headline rents have experienced no changes in relation to last year and remain static at £20 per square foot. With regards to out of town properties, rental costs are in the region of £16.95 per square foot.

There are no speculative office developments on the pipeline, which means that availability could decrease by 8 per cent over first three quarters of 2013.

Retail space in Newcastle

According to data published by Newcastle's City Council, the city ranks 30th in terms of retailer's requirements for floor space, although the city has one of the most active retail property markets at regional level. There are approximately 900 retail units in Newcastle and a total of 230,000 square feet of retail stock.

Current vacancy levels for shop units exceed 9 per cent, and the majority of vacant units are on the small side, measuring 100 square metres and under. There is a high concentration of vacant retail space in the Newgate shopping centre, and around Bigg Market and Pilgrim Street. In contrast, large units of Grade A retail space seem to be rented out rather quickly, as an increasing number of top retailers move open outlets in the city.

Approximately 40 per cent of the total retail stock in the city centre consists of managed floor space (mostly in shopping centres around Eldon Square and Northumberland Street).

Headline retail rents in Newcastle are among the highest in the region and only second to the Metro Centre in Gateshead. Current prime retail rents in Newcastle reach values of £3,498 per square metre.

Industrial space in Newcastle

Although Newcastle's economy has been fuelled for several decades by heavy industries, a shift towards a service-based economy has resulted in diminished demand for industrial and warehouse floor space in the city. Currently, the highest demand for industrial space comes from companies in the retail distribution industry. Take-up rates are in the region of 500,000 square feet and the total availability is calculated at 2 million square feet of space.

The number of enquiries for industrial properties has remained stable over the past four years. However, there has been a decrease in the number of enquiries for industrial floor space of 50,000 square feet and over.

Headline rents for Grade B industrial properties continue to drop as landlords struggle to keep up with the rather slow market. Rents have dropped to values below £4 per square foot in some locations. As for Grade A industrial floor space, prime rental values have experienced little variation and stand at £6 per square foot.