Property still sound despite credit crunch

Jan 9 2008 by Graeme King, The Journal

Predicting what will happen in the office sector proves risky

FORECASTING what is likely to happen over the next 12 months is a notoriously risky thing to do, but there are some clear facts which will influence take-up of office space in Newcastle city centre and rental growth during 2008.

At the time of writing not all the relevant statistics for 2007 are known. But what is clear is that by the end of the third quarter of 2007 take up of Grade A office space in the city centre was down by about one third and, crucially, supply was down by about 50%.

This demand/supply imbalance will carry through to 2008 with a possible conclusion that too much demand for too little space will drive office rents higher than the current headline rent of £22 per sq ft.

I would agree that 2008 will see a new rental high but I suspect that it will be in the region of £23 per sq ft and not the often quoted high of £24 per sq ft.

Clearly you are asking ‘why?’ Much of the construction activity to be seen in central Newcastle is pre-let. For example Terrace Hill’s Time Central scheme in Gallowgate is nearing completion and is fully let to Muckle and Brewin Dolphin at rentals rumoured to be around £18 per sq ft.

The last 12 months or so have seen rentals increase from £20 per sqft to £22 per sqft established on the 22,500sqft letting at Trinity Gardens, Quayside, to Faber Maunsell so it was not very long ago that headline rents were below the £20 level.

Currently there is just over 67,000sqft available with only just over 100,000sqft coming through in 2008 – a total of some 188,000sqft spread across seven projects.

While there is demand in the market place there is also some hesitancy as a result of the sub-prime debacle which is still over-hanging the financial and professional markets.

Beyond 2008 is an entirely different matter with the supply chain becoming more relaxed. What is particularly exciting is the level of major schemes to come through which will further underline the position of Newcastle as a major UK regional location for businesses.

The last 10 years have seen some impressive development but this is only the start with the combined Newcastle/Gateshead location growing in importance.

Paul Nicholson is director of agency at Atisreal

PAGE THREE: Industrial market remains strong.