The North East


North East Office Market Sees Flight to Quality, Arrival of Serviced Offices Giants and Rising Demand for CAT B Space


Partner and offices expert at Naylors Gavin Black, Chris Pearson, gives us an update on the North East office market:


According to the regionwide office take-up figures for the first two quarters of 2023, the market is on track to achieve at least the average, or a similar result, to the last three years. This is taking into account that 2021 was an unusual year, given the huge pre-letting of 463,000 sq. ft. at Pilgrim’s Quarter and Just Eat’s 217,000 sq. ft. acquisition at Rainton Bridge. If you take these two anomalies out of the 2021 figures - 2020, 2021, 2022, and so


far 2023, all show similar office uptake volumes in the city, and out of town.


The market has remained fairly resilient, despite all the issues faced in the economy.


Serviced office giants come to Toon The two biggest - and noteworthy - office lettings of Q3 are the decent chunks of space let to serviced, flexible office providers, Orega and Cubo. Cubo has taken 20,000 sq. ft. over the top two floors of Newcastle’s newest office, Bank House and Orega has moved into 22,500 sq. ft. of newly refurbished office space at Palace Capital’s No. 2 St James Gate office development. Both have signed management agreements, rather than traditional leases.


Back in the day, serviced offices were where you stayed until you were grown-up enough to get your own lease. The kindergarten of offices, if you will. The poor relation to your OWN office - but not anymore. The


serviced offices sector generated a revenue of £961m in 2013 and has grown significantly year-on-year until its peak of £2.6 billion in 2020. The work-from-home trend has impacted its growth a little but the rocketing cost of fitting out an office has added to its popularity.


Flight to quality does not abate


The trend for hybrid working and a preference for enhanced tenant amenities to help attract and retain staff, has led to many corporate occupiers reducing their office requirements, to coincide with lease events. They generally want less space of a better quality, with their overall costs not significantly increased. This trend is known as a ‘flight to quality’ and has recently seen Barclays let the 7th floor at Bank House, DWF move to Central Square South and Deloitte take hybrid office space at Trinity Gardens.


Fully-fitted CAT B space on rise In response to high demand, more landlords are starting to offer fitted- out (CAT B) space with furniture to attract tenants who are put off by the increasingly high capital expenditure required to fit-out an office. A good example of this, is Lloyds Court on Grey Street, Newcastle, where the vacant part of their third floor is now being offered on this basis, by landlord Buccleuch Property.


All-in-all, I’m pleased to report that the office is still alive and kicking in the North East. But: it’s higher quality. More likely to have better amenities than it would of pre-pandemic. And an increasing amount of them are CAT B and/or serviced, flexible spaces.


For more details please visit: www.naylorsgavinblack.co.uk


North East Industrial Market Sees Slight Easing of Under-Supply Issue


Partner at commercial property consultancy, Naylors Gavin Black, Keith Stewart, talks us through the latest from the North East industrial property market:


Economic uncertainty caused by higher energy costs, inflation, burgeoning interest rates and the war in Ukraine, has seen the industrial market slow down this year. But - whilst these headwinds have stalled decision making for some businesses - deals are still being done. Albeit they are taking longer to complete.


We’re now seeing vastly elongated timescales, from initial enquiry and viewing, through to negotiating terms, and progressing legals.


The region’s long-running, historic issue of an under supply of decent, modern stock above 50,000 sq. ft. has eased a little. As at Q3 2023, there is now in the region of four million sq. ft. of available space in units of 50,000 sq. ft. and above. This is a notable uplift from the record low in 2022 of 1.9 million sq. ft. We have new developments that came onto the market late 2022, and early 2023, at Turbine Business Park, Hillthorn Farm and Integra 61 to thank for this.


Whilst there has been progress with stock, there still remains a lack of modern units across all size ranges in the region. On top of this, many of the major multi-let estates are at, or are very near, full capacity. Occupiers looking for good, multi-let industrial space are often being turned away, disappointed, due to the limited number


COMMERCIAL PROPERTY MONTHLY 2023 of, or no, properties being available.


In the last couple of years, a lot of Grade B and C space was snapped-up by occupiers or investors/developers seeking cheaper options, but this stock has now been replaced with new-build opportunities which is keeping the region competitive and is good news for inward investment.


Short-term lets for larger requirements have been fundamental to productivity whilst the UK has adjusted from Brexit and the pandemic. But time has now been called on these lifelines as most landlords change tack and are now unwilling to let facilities for such short-term arrangements. This is generally due to lack of good supply. This is likely to lead to longer term requirements and commitments in the medium term, due to a limited number of more new builds coming forward.


We are seeing more and more occupiers willing to pay over- and-above the market rent rate to secure buildings. This trend is driven by either contracts that need to be fulfilled, or companies expanding at pace.


Demand is high across all size ranges generally, with popularity for units up to 5,000 sq. ft. and this is highlighted in the uptake across the region and the limited number of available smaller units in the marketplace.


Despite no new speculative development coming forward in the short term, the headwinds, and the cost of doing so making it somewhat unviable, the outlook for the region is still positive.


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