Light on the horizon 

October 13, 2016

September was a mixed bag for the North East commercial property sector, grappling as it has been with the Devolution saga and the Brexit referendum result with the uncertainty it continues to cause, not just regionally but globally, as evidenced by the G20 summit and Japan’s concerns over the looming loss of the UK’s single market status.

With half of Japan’s investment in the European Union earmarked for the UK, there are regional employment concerns in the short term given the number of high-profile Japanese companies here. The North East is an excellent location for business. It exports over £12bn worth of goods annually and is the only UK region with a positive trade balance. Nevertheless, sentiment doesn’t run industry.

Regional Devolution has collapsed in a bewildering fashion. With the three local authorities north of the Tyne voting ‘yes’ and the four to the south voting ‘no’, Devolution’s fate was sealed. Such tribalism has amazed the property sector for at stake was £900m funding over 30 years, together with a strategic economic plan to create 100,000 jobs. All in all, a stunning own goal.

Meanwhile, Sunderland and South Tyneside Councils have just completed public consultation on the International Advanced Manufacturing Park, north of Nissan, a joint venture that could attract over £300m of private investment and create more than 5200 new jobs by 2027.

But judging by the organisers of this month’s MIPIM UK show in London, Manchester continues to dominate the North. “Manchester, Liverpool and Leeds…will provide investors with a unique opportunity to see what these northern giants have to offer,” they say.

Well we have a lot to offer, too. Invest North East England will have comprehensive representation at MIPIM but beyond that it’s the government’s estate strategy to decant government offices out of London to the regions that offer potential.

A Cabinet Office spokesperson told me that the estates vision is: “…to create an efficient, fit-for-purpose and sustainable office estate. As part of that vision, the Government Hubs Programme is driving a radical reshaping of the Civil Service office estate. The aim is to reduce the size and cost of the office estate through multi-departmental hubs in strategic locations across the United Kingdom.”

The Government Property Unit (GPU) is currently working with all Civil Service departments and location details for hubs will be available in due course.

It is understood that 13 regional centres for HMRC/DWP will be created. Will Newcastle figure in this? Tony Wordsworth, director of National Markets – Offices at Bilfinger GVA and a member of G9*, confirms that a government office hub is planned for Newcastle. “It’s just that the proposals haven’t been made yet,” he says.

He agrees that other cities such as Manchester are ahead of Newcastle in terms of planning, “but I anticipate progress on the plans for Newcastle soon”.

There has been considerable activity across the country as the strategy has been implemented with property take-up or searches being carried out for office space in locations such as Glasgow, Bristol, Croydon and Cardiff, for example.

Under the Government Property Unit’s (GPU) guidelines, which have seen government estate running costs reduced by £625m a year between May 2010 and March 2014, it is clear that Newcastle is a very competitive location using the GPU’s key performance indicators covering efficiency/costs, sustainability and effectiveness.

Further good news for the sector is Legal & General Capital’s decision to support the £350 million Newcastle Science Central, one the biggest urban regeneration projects of its kind in the UK. This is a unique deal that will see the financial services giant becoming a long-term investment partner on Science Central alongside Newcastle City Council and Newcastle University.

An initial £65 million investment will fund completion of two buildings on premium plots one and two, offering over 200,000 sq ft of Grade A office space, create 2000 jobs and boost economic growth, and will help unlock the potential of further investment in commercial and residential plots.

The investment is the biggest property deal seen in Newcastle for decades, and Legal & General Capital’s investment follows recent announcements that a National Centre for Energy Systems Integration will be built on site. This is the third national centre of excellence secured on Science Central.

The recent letting of The Rocket, a 35,000 sq ft office building in the Stephenson Quarter, to Convergys, and the letting by Knight Frank of the Quayside’s 15,000 sq ft Live Works to ZeroLight, brings the supply of new Grade A space down to just 11,000 sq ft in The Jesmond (Jesmond).

The lack of new Grade A office space could result in a programme of refurbishment of existing buildings which can deliver required space quickly and in an imaginative way as Simon Taylor, director and head of Office Agency, Naylors, and also a member of G9, explains:

“The number of opportunities to accommodate large scale government department relocations in Newcastle is quickly diminishing. It is something that has been discussed for ten to 15 years and the optimum time would have been 2009/2010 when there was 1,000,000 sq ft available in North Tyneside and unbeatable terms available.

“However, it’s a case of better late than never and there are still the likes of Q10 at Quorum (108,000 sq ft) and Cobalt 23 (126,000 sq ft) which are standing available and new build development opportunities coming forward across the region.

“Newcastle City Centre market is more constrained than the out-of-town market and will be dominated by Stephenson Quarter in terms of new development in the short term. We are seeing landlords of existing buildings starting to invest significantly in refurbishments to compete in the Grade A market where supply is limited and demand strong.”

*G9 comprises HTA Real Estate, Gavin Black & Partners, BNP Paribas Real Estate, Lambert Smith Hampton, Cushman & Wakefield, Bilfinger GVA, Naylors and Knight Frank.

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