Newcastle: A North Eastern Powerhouse

May 1, 2019

Savills’ most recent Spotlight research document is full of objectivity which puts a welcome focus on this capital of the North East, writes Chris Dobson

Newcastle is one of the fastest growing cities in the UK with a new wave of mixed-use city centre regeneration schemes, which are revitalising the urban core, says Savills’ in its Spotlight on Newcastle: A North Eastern Powerhouse report.

The report identifies mixed-use city centre schemes such as Helix, East Pilgrim Street and Stephenson Quarter as key to driving growth in the city, with each scheme offering space which will complement rather than compete with one another.

According to the report, Newcastle will benefit from the North of Tyne devolution dea,l which will bring an additional £600 million of investment to the region over the next 30 years. Four Neighbourhood Opportunity Areas in Newcastle have already been identified in the Core Strategy, with the potential to deliver more than 20,000 homes.

Neil Morton, planning director at Savills Newcastle, says that while Newcastle is now delivering homes far in excess of its Core Strategy target this poses Newcastle with a “somewhat unique challenge” not on how to increase delivery to meet demand, “but how to ensure this level of delivery continues”.

“The city is highly constrained by the green belt, with over a third of its area currently protected,” he says.”This has made it difficult for the council to find unconstrained land outside of the city’s urban core. The city will need to think more imaginatively in order to identify new sites if it is to sustain its current and forecasted strong economic growth.”

In terms of the office market, Newcastle faces several challenges that need to be addressed to keep up with other competing cities across the UK.

In 2018, £27 million in venture capital was invested in companies headquartered in Newcastle, outperforming Birmingham, Leeds and Glasgow. However Newcastle still has a business start-up rate that is lower than all similar UK cities indicating that it runs the risk of these dynamic companies moving elsewhere as they expand due to the lack of appropriate office space available.

Grade A office supply is currently at just 175,000 sq ft, 15 per cent below the ten-year average with occupiers instead reliant on refurbished space to fill the gap. The new wave of mixed use city centre regeneration schemes underway, should help ease supply issues and contribute to the first rises in top office rents in the city for five years, with rents likely to rise from £23 per sq ft by ten per cent by 2022, according to Savills.

Roger Speirs, commercial valuations director at Savills Newcastle, adds: “With increased housing delivery in the city region, there is a clear need for more high-specification, serviced and flexible Grade A office space, concentrated in the urban core. This will be essential to the strength of Newcastle’s emerging technology and media sectors and could be an impediment to the city’s growth if not delivered.”

Grade A office space has significantly diminished after a decade of limited development within Newcastle’s core and the repurposing of a number of buildings to retail, leisure and student housing. Grade A supply is currently at 175,000 sq. ft. This total is 15 per cent below the ten-year average, but more notably, none of this is made up by new development.

Failure to meet demand has limited the growth prospects of local businesses and has made it harder to attract new occupiers. With this lack of supply in the city centre, growth has been inhibited over the last ten years with occupiers reliant on refurbishments to bridge the gap.

Grey Street remains a popular location and refurbished space is letting up at speed. However new developments are the current preference for larger occupiers as older buildings are less able to accommodate modern methods of working. Innovative approaches to development have been key to unlocking sites and the city council have made good use of wraparound leases to support office development.

This includes the Helix’s 100,000 sq ft office block, due for completion in the second half
of 2019, which will help to make a dent in the shortfall of Grade A supply.

Newcastle also has strong partnerships between the private and public sector, supporting and accelerating the development and growth of the city. A £92 million investment into the Newcastle and Gateshead’s 80 hectares Accelerated Development Zone is creating a clustering effect, which will stimulate productivity and job growth.

However, funding for speculative commercial development has been very restricted. One way to deliver new commercial space is through mixed use regeneration schemes where the different uses limit the amount of exposure to one single sector. With this in mind, Newcastle is seeing a new wave of mixed use city centre regeneration schemes, which are revitalising the urban core and enabling it to expand outward.

These schemes are providing complementary rather than competing space. Helix – a £350 million joint project between Newcastle City Council, Newcastle University and L&G – is creating a new innovation cluster in the city.

In recent years, there has been a trend towards smaller office requirements for start-ups and SME occupiers, likely to be geared towards Newcastle’s emerging technology and media sectors. However, The Lumen building will cater for a larger anchor tenant.

The Stephenson Quarter is a major mixed-use scheme with the North East Futures University Technical College (UTC) and the six-storey Phoenix office development are of particular interest.

The two buildings will be mutually beneficial and interlinked. Phoenix will accommodate dynamic, high-growth companies and offer the potential for co-operation with the adjacent UTC, giving students work experience and mentoring opportunities. In return, new businesses to the area are able to tap into a skilled talent pool.

Finally, East Pilgrim Street represents one of the most strategically important city centre regeneration areas in the North of England. The northern block of the site is allocated for retail- led development which provides an opportunity to extend the prime retail-led offer. This will be supported by mixed uses in the central and southern blocks, including office, residential and leisure.