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Large pre-let commitments and speculative starts provide optimism

February 3, 2021

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Strategic real estate advisor Avison Young has released its latest quarterly Big Nine office market update, covering Q4 2020, the year in review and predictions for 2021.

Total take-up across the Big Nine cities amounted to 5.6 million sq ft during 2020, the lowest annual figure following the Global Financial Crisis and 33% down on the ten-year average. In most cities, take-up was severely impacted by the pandemic. However, activity remained robust in Newcastle and Bristol, which fared the best of the nine cities.

Tony Wordsworth, Director, National Offices Team at Avison Young, Newcastle said: “During an unprecedented time of uncertainty for the office market, there were some encouraging signs of activity towards the end of the year. The markets have seen a number of significant pre-letting deals and on the supply side several speculative schemes across Bristol, Leeds, Manchester and Newcastle have started on site, totalling 900,000 sq ft.”

Newcastle saw robust office leasing volumes during 2020 given the economic backdrop, totalling 629,200sq.ft. across the whole market, just 8% below the ten-year average.

The out-of-town market was more dominant than usual, accounting for 76% of all take-up for the year, although during Q4 the largest deal was in the city centre, 25,482sq.ft. to NHS charity Rococo at 1 Carliol Square. Out of town there were five deals more than 5,000sq. ft, the largest of which was 15,241sq.ft. to Essentra.

Immediate demand requirements look healthy for the year ahead, with Invest Newcastle continuing to receive north shoring and reshoring interest from companies attracted to the city by the competitive low-cost base.

The city centre continues to be the focus for office development. The Lumen at Newcastle Helix is letting well and the Spark, not due for completion until 2022 – is already seeing significant interest. As a result, with a lack of any “grey space” returning to the market in the short term, it is expected vacancy levels will remain relatively low.

Looking further ahead construction has started on Ask Real Estate’s 70,000sq. ft. One Strawberry Lane, following forward funding from Canada Life, with the building already let to the Home Group on a 30year lease. Elsewhere, Taras Properties’ 120,000sq.ft. Bank House at East Pilgrim Street is under construction and due for completion in 2023.

Investment interest from overseas buyers remains in line with the annual average, while interest from property companies was greater than the average at 33%. However, institutional investment was subdued, accounting for 14% of volumes.

Simon Beanland, Principal and head of investment at Avison Young, Newcastle said:

“We expect sentiment to remain subdued for the first quarter of 2021 while tough lockdown restrictions remain, but once these are eased, we anticipate continued investment activity for prime city centre offices and in some well-located out-of-town developments where there are strong levels of occupational demand. However, there is likely to be an increase in the yield gap between prime and secondary property as investors continue to favour grade A, long income and good covenants.”

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