Demand for offices returns

Demand for offices returns

Demand for yield and value is reviving appetites for city centre office stock.

It’s evident in Newcastle, says Dickon Wood, investment partner at Knight Frank. Midway through this year, turnover had already almost matched all 2013’s total. Prime, long-income yields in Newcastle are estimated at about 6%. Recent deals have included Standard Life’s purchase of Central Square South from Parabola Estates. The modern offices behind Newcastle’s Central Station sold for £21.5m, a net initial yield of 7.61% with a weighted average unexpired lease term of 4.5 years.

St James’ Gate has also featured. The 10-year-old offices let to Baker Tilly and Watson Burton with a weighted average unexpired lease term of nine years carried a price of £17.44m (7.5% initial yield). The city centre figures were further boosted by Newcastle University’s freehold buy of 34,134sq ft at 89 Sandyford Road, and Ernst & Young taking 11,897sq ft of Grade A space at Citygate.

Chris Dent of DTZ says the main concern in the city centre is a dwindling supply of Grade A space. Simon Taylor of Naylors detects that quoting rents are starting to nudge up slightly.

The mixed use Stephenson Quarter remains the sole development going up in the city centre. Its Rocket offices (35,000sq ft) due for completion next July, are the only city centre options likely to start this side of 2015.

Out-of-town take-up of offices still dominates, with 29 deals (179,722sq ft) recently completed compared to 14 deals (86,938sq ft) in Newcastle city centre. The £17.5m sale of Tesco Bank’s premises at Quorum Business Park reflected a net initial yield of 8.01%.

Deals of more than 25,000sq ft have included Cofely Workplace’s 26,996sq ft acquisition of Q3 at Quorum Business Park and Parseq’s 32,104sq ft lease at Doxford International Business Park, Sunderland.

Other deals include Kennedy Wilson Europe Real Estate having completed the purchase of Fordgate portfolio, which includes the Regent Centre office complex at Gosforth.  

The Regent Centre investment is seen as a sign of activity returning to the office sector. Out-of-town figures were further boosted by the 77,632sq ft letting to Utilitywise at Cobalt, North Tyneside and 46,600sq ft let to AMA Group at White House, Peterlee.