2022 FORECAST
Newcastle
- There are reasons to be cheerful across the whole of the North East, from the Tees Valley in the south of the region, to Durham, Sunderland, Gateshead, Newcastle and Northumberland. The area has seen an incredible amount of activity across the region in the last 12 months, much of which bodes well for 2002 and beyond, with a number of substantial, long-term projects in the pipeline.
- The Saudi takeover of Newcastle United and HMRC’s commitment to the city during the latter part of 2021 are two big fillips for the city.
- The office market is coming off the back of its most successful year of lettings on record – with HMRC and Just Eat committing to approximately 650,000 sq ft between them. Treasury North in Darlington is planned to hold 750 civil servants as part of the Government’s plans to move 22,000 civil servants out of London by the end of the decade.
- Newcastle has an oversupply of retail space, with much of the repurposing still to happen. The rate of rental falls will continue to slow as the market finds its bottom.
- House price growth in Newcastle underperformed the wider UK in 2021 but was still very strong relative to pre-pandemic levels, rising 7.5%, compared to 9.7% across the wider North East. Unlike the rest of the country, the market suffered from a lack of liquidity – this will likely continue to be an issue in 2022 and put upwards pressure at the higher end of the market.
- Teesworks has seen rapid progress demolition and site preparation moving at pace. By Spring 2022, there will be consent for nearly 15m sq ft of space.
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Economy
Offices
Retail
Industrial
Residential
Economy
The buzz in Newcastle is very much about new entrants to the city. The Saudi takeover of Newcastle United has drawn the attention of an international audience to the city. Less high profile – but nevertheless a big boost to the economy - was the news late in 2021 that HMRC is committing to 430,000 sq ft and 9,000 jobs in the city. This could provide a catalyst for further development in the city centre. Moreover, we expect North East England to continue to grow as a leading centre for the Green industrial revolution.
The city continues its bounce back post-pandemic. 2022 is forecast to see the economy grow by 6.2%, well above the pre-covid average of 2.1% per annum. This will be driven by the recovery in accommodation and food services, which will grow by 29.1% and 16.5% respectively. Education is forecast to grow by 9.6%, while transport and storage is forecast to grow by 8.9%, in line with national trends.
We expect 4,300 jobs to be added to the economy during the course of the year, taking total employment to a record high of 211,000 – around 1,400 of these new jobs will in traditionally office-based employment. Just over 800 of the newly created jobs are expected to be in the Accommodation and Food services sector, reflecting the recovery of Newcastle’s leisure economy.
NEWCASTLE DASHBOARD – ECONOMY
Offices
The Newcastle office market recorded its strongest take-up on record during 2021, following two exceptional lettings. HM Revenue and Customs (HMRC) has recently agreed to take 465,000 sq ft at Pilgrim’s Quarter, part of the Pilgrim Street development. Elsewhere, the summer saw inward mover Just Eat, the online food delivery service, take 217,339 sq ft at the former EE contact centre at Rainton Bridge. Another major coup for the region was in the west of the Tees Valley, with the Treasury relocation announced for Darlington.
Large lettings are rare for Newcastle and the HMRC deals represents the largest ever city centre letting. The market will continued to be driven by the number of growing businesses who have committed to the city. These include Monster Labs, Thought Works and Verisure, the latter of which have gone from 6 staff to 400 – with expectations of growing more in the short term.
Occupiers’ net zero carbon commitments are starting to drive decisions, which means new or refurbished space is in high demand. Consequently, there continues to be considerable interest in the new space in the city centre. The 2020 completion of The Lumen was followed in 2021 by the completion of the Spark in December 2021- where Womble Bond Dickinson (47,500 sq ft) are due to move this year.
Bank House, the first phase of Pilgrim Quarter is under development, and while not due to complete until 2023, it is attracting significant interest. Where there is a supply of second-hand space available, landlords are looking to refurbish to a much higher standard, with Schroders fitting out Earl Grey House to a Cat A+ finish in order to attract occupiers – particularly with limited supply of flex workspace in the city. While supply has increased during the course of the year, the limited availability of top-quality space will put upward pressure on prime rents.
Sunderland City Council is continuing to deliver on its 20 year masterplan with early delivery of infrastructure and progress of key sites such as Vaux. To date the former brewery site has seen the development of The Beam and the Council taking possession of the landmark City Hall. To develop further space in the city the Council are working in partnership with Legal & General and Landid to bring forward an additional 200,000 sq ft of commercial development.
NEWCASTLE DASHBOARD – OFFICES
Retail, Hotels and Leisure
Newcastle has an oversupply of retail space, with vacancy as high as 27%, and we expect to see a further repositioning of the stock both in the city and nearby during the course of the year. The Eldon Square former Intu will be repurposed to be more attractive for locals and independents, while the nearby former Metro Centre is under new management, and is seeing a move towards ‘experience’ – Harrods H beauty, JD and H&M have all signed new long-term leases for flagship stores in the centre.
In Sunderland the former Binns Department store has been repositioned as a music venue and arts hub. In Middlesbrough, the Council has purchased Captain Cook Square, the former House of Fraser and now the Cleveland Centre. In Durham, there have been changes to political landscape but development continues at Milburngate, with office, retail, leisure and hotel space coming forward, whilst the Council is also bringing forward exciting plans for Aykley Heads. In time, all of these elements will all help contribute to the area’s status as a retail destination.
The oversupply of retail space has continued to drive down rents, although we are now likely to see those falls stabilise.
Newcastle’s hotel market tends to see waves of development, and during 2022 the city will see a combined 112 rooms open across two hotels. The city continues to attract strong weekend numbers, although midweek demand remains relatively weak. The new arena proposed in Gateshead will likely help boost visitor numbers when it opens in 2023.
NEWCASTLE DASHBOARD – RETAIL
Industrial
The market continues to benefit, as much of the country has, from strong demand. Take-up was c.30% higher year on year, with Amazon’s commitment to the region driving much of this. Strong demand has driven prime rental growth upwards, with significant increases over the last 18 months – with growth forecast to continue into 2022. This is driving an increase in appetite for speculative development, with L&G building 600,000 sq ft at Hillthorn Park and 165,000 sq ft coming through at Turbine Business Park – which will be privately funded.
During 2022, the market will be hampered by a lack of available stock. Much of the supply that has come through in the market has been accounted for, and there is little in terms of both new supply and second-hand stock coming through in 2022. Amazon are building a fourth fulfilment centre which is expected to be two million sq ft once complete. Other significant developments include the 2.5 million sq ft Britishvolt battery Gigafactory in Northumberland which has already started on site with enabling works, while Envision are building their own EV production facility adjacent to Nissan in Sunderland.
In the south of the region, Teesworks has seen rapid progress demolition and site preparation moving at pace across the 4,500 acre site. This is the UK’s largest industrial zone, home to sustainable and low carbon activity including carbon capture and offshore energy and has the UK’s largest freeport. There continues to be significant investment into the area by Spring 2022; there will be consent for nearly 15m sq ft of space. Ultimately, Teesworks will create 20,000 new jobs and is estimated to contribute £1bn a year to the North East economy.
NEWCASTLE DASHBOARD – INDUSTRIAL
Residential
House price growth in Newcastle underperformed the wider UK in 2021 but was still very strong relative to pre-pandemic levels, rising 7.5%, with the wider North East seeing 9.7% growth. In line with broader trends, demand for family housing and the ‘race for space’ have been key features of the market and this is something we expect to continue in 2022. Newcastle’s housing market also saw limited supply coming to market in 2021, with the number of properties coming to market well down on pre-pandemic levels. This is likely to continue to be an issue in 2022 and means that pricing, particularly for the most desirable types of property, will continue to see upward pressure.
Ambitious plans for housing in Sunderland should gain momentum in 2022. In 2021 planning approval was granted for the first stage of a plan that should eventually deliver 1,000 new homes across four new neighbourhoods. PFP Igloo is managing the wider Riverside Sunderland masterplan for Sunderland City Council.
The outlook for Newcastle’s PBSA sector in 2022 is mixed. The city has a strong higher education sector, including a Russell Group university and has a positive underlying demand picture with growing undergraduate applications. However, it has seen a large amount of PBSA supply in the last five years which has had some negative impact on investor sentiment and rental levels.
Newcastle’s BtR sector is still relatively nascent although 2021 saw several notable deals including development funding on Gateshead Waterside and Grainger’s acquisition of the operational Forge scheme. Ongoing regeneration in the city will help to unlock new opportunities and the this may help grow the currently limited pool of investors interested in the city’s BtR sector.
NEWCASTLE DASHBOARD – RESIDENTIAL
2022 Forecast Newcastle Digital Event
Watch our recent live event, where we brought together a series of experts to explore the key drivers and predictions for Newcastle in the year ahead.
Broadcast 20th January 2022