Newcastle: A north eastern powerhouse - Mixed use development opportunities Emerging tech sector Industrial demand - Savills
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UK Cross Sector – Spring 2019
Newcastle: A north
eastern powerhouse
S P OT L I G H T
Savills Research
Mixed use development opportunities Emerging tech sector Industrial demand
Overview Overview
Graeme Peacock
Challenges and opportunities significantly more affordable than the Figure 1 Residential development has increased
As an affordable location that is attracting public and private investment, most expensive core city, Bristol, which rapidly and is now exceeding local plan targets
new opportunities are beginning to emerge in Newcastle has a house price to earnings ratio of 9.11.
The city has also benefitted from 3,000
Newcastle is one of the fastest growing In the future, Newcastle will benefit The city in context pro-development local government.
cities in the UK, with 21,000 new from the North of Tyne devolution Comparison with the other nine Following the downturn during the
2,500
homes and 14,000 new jobs expected deal. Implemented in 2018, the deal UK core cities and additional strong global financial crisis, housing delivery
over the next 12 years. The city’s will bring Newcastle, North Tyneside regional centres such as Oxford, has risen strongly from 2013-14, and for
population is projected to reach and Northumberland together under Reading and Edinburgh demonstrates the last two years, new housebuilding
Net Additional Dwellings
2,000
over 310,000 by 2030, an increase of a Mayor, and will bring an extra £600 Newcastle’s strengths, and the areas has been equivalent to 2% of existing
6% from 2016, while the city region million of investment to the region over where the city faces challenges. housing stock. None of the other
population is projected to be 2.75 the next 30 years. The city is becoming more cities in the comparison group have a 1,500
million by 2030. The powers devolved to the new prosperous, with earnings growth of housebuilding rate higher than 1.6% of
The combined urban cores of Combined Authority will include land 26% between 2007 and 2017. Of the existing stock.
1,000
Gateshead and Newcastle are the key acquisition and disposal, and the ability comparator cities, Leeds is the closest Although Newcastle has a low
employment area in the North East, to establish Mayoral Development with earnings growth of 22% over the proportion of the population educated to
and the main driver of the city region Corporations to serve North of Tyne’s same period. NVQ4 or above (33.8%), it does manage 500
growth. It benefits from high levels housing and regeneration ambitions. Rising earnings combined with to retain a high proportion of graduates,
of accessibility and connectivity; Four Neighbourhood Opportunity moderate house price growth means with over 36% of students choosing to
approximately 299,000 people work in Areas in Newcastle have already Newcastle has relatively affordable remain in the city after graduation. The 0
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
the urban cores, and 45% of employees been identified in the Core Strategy, housing. Median house prices are 5.85 city also has a global pull; nearly 30%
travel to work from outside the two which have potential to deliver over times median earnings, in line with of students at Newcastle University are
local authorities. 20,000 homes. Liverpool, Sheffield and Glasgow, and international students.
Source MHCLG
2 3
Overview City Centre Development
New access to finance
should stimulate the city’s
tech sector Where next for
city centre development?
The growth A range of uses are required to support a vibrant city centre
of the tech Grade A office space has significantly block, due for completion in the second buildings are targeting start-ups and
sector diminished after a decade of limited
development within Newcastle’s core
and the repurposing of a number of
half of 2019, which will help to make a
dent in the shortfall of Grade A supply.
Newcastle also has strong
SME occupiers, likely to be geared
towards Newcastle’s emerging
technology and media sectors.
Newcastle has seen a significant buildings to retail, leisure and student partnerships between the private However, The Lumen will cater for
growth in the tech sector over housing. Grade A supply is currently at and public sector, supporting and a larger anchor tenant.
the last five years, with digital
175,000 sq. ft. This total is 15% below accelerating the development and The Stephenson Quarter is a major
tech start-ups increasing by 154%
the 10-year average, but more notably, growth of the city. A £92m investment mixed use scheme including the 35,000
from 2011 to 2016. With the long-
awaited JEREMIE2 funding now However, Newcastle faces several In addition to office space, the none of this is made up by new into the Newcastle and Gateshead’s 80 sq. ft. Rocket office building, which has
live, new access to finance should challenges that need to be Core Strategy for Newcastle specifies development. Failure to meet demand hectares Accelerated Development Zone been fully occupied by Convergys since
also stimulate the city’s tech addressed to keep up with other retail development as a particular has limited the growth prospects of is creating a clustering effect, which will its completion in 2016 – an indication
sector. The £120 million fund could competing cities across the UK. priority for the urban core. It sets out local businesses and has made it harder stimulate productivity and job growth. of the demand for new office space in
support 600 businesses and help In 2018, £27m in venture capital a desire to improve the range, quality to attract new occupiers. the market. The North East Futures
create around 2,500 jobs over the
funding was invested in companies and quantity of retail provision, with With this lack of supply in the A mixed use approach University Technical College (UTC)
next five years.
headquartered in Newcastle, the specific ambition of increasing the city centre, growth has been inhibited However, funding for speculative and the six-storey Phoenix office
The then minister of state for
digital, Matt Hancock, named outperforming Birmingham, Leeds amount of comparison retail by 50,000 over the last 10 years with occupiers commercial development has been development is of particular interest.
the North East of England the and Glasgow. sq. m. of floor space. Our analysis reliant on refurbishments to bridge very restricted. One way to deliver new The two buildings will be mutually
fastest growing tech hub outside But Newcastle still has a business suggests that future developments the gap. Grey Street remains a popular commercial space is through mixed beneficial and interlinked. Phoenix will
of London. Business growth and start-up rate per capita that is lower should seek to provide flexible retail location and refurbished space is use regeneration schemes where the accommodate dynamic, high-growth
collaboration have been stimulated than all the comparator cities. and leisure formats that are currently letting up at speed, with several different uses limit the amount of companies and offer the potential for
by a number of support networks
This may in part be due to the lack under-represented in the city centre, as transactions in recent months including exposure to one single sector. cooperation with the adjacent UTC,
including Digital Union and
of appropriate commercial space to well as increased cultural, community Earl Grey House and 71 Grey Street. With this in mind, Newcastle is giving students work experience and
Dynamo, companies that specialise
in raising the profile of members attract new occupiers. The 2010- and civic uses, rather than solely Refurbishments have plugged the gap seeing a new wave of mixed use city mentoring opportunities. In return,
and the sector as a whole. 2030 Core Strategy identifies the increasing traditional retail supply. over the last few years, resulting in centre regeneration schemes, which are new businesses to the area are able to
The recent establishment dated nature of some of the city’s Given the importance of Newcastle impressive rental growth of around revitalising the urban core and enabling tap into a skilled talent pool.
of the Newcastle Tech Trust, a office stock as a challenge. city centre as an economic hub for 10% on certain buildings. However, it to expand outward. Finally, East Pilgrim Street
group of experienced founders The provision of more high- the wider North East region, creating new developments are the current These schemes are providing represents one of the most strategically
that understands the needs of
specification, serviced and f lexible an urban core that acts as a focus for preference for larger occupiers as older complementary rather than competing important city centre regeneration
early-stage, high-growth tech
office space, concentrated in the investment and business, and meets buildings are less able to accommodate space. Helix – a £350m joint project areas in the north of England. The
companies, is further empowering
ambitious technology start-ups urban core, will be essential to the the needs of occupiers and residents modern methods of working. between Newcastle City Council, northern block of the site is allocated
and scale-ups. Newcastle is home strength of Newcastle’s emerging will be critical for the long-term Innovative approaches to Newcastle University and L&G – for retail led development which
to the only FTSE 100 software technology and media sectors. success of the region. ■ development have been key to unlocking creating a new innovation cluster in provides an opportunity to extend
company in the UK – The Sage sites and the city council have made the city. the prime retail-led offer. This will be
Group plc. good use of wraparound leases to In recent years there has been a supported by mixed uses in the central
Key sectors attracting venture capital investment support office development. This trend towards smaller office and southern blocks, including office,
includes the Helix’s 100,000 sq. ft. office requirements; therefore these initial residential and leisure.
40% 30% 11%
Software Healthcare Energy
4 5
City Centre Development City Centre Development
Top rent: £24.50 per sq. ft. Bringing residential back to the city centre
Growth of 6% by 2020 will also support commercial activity
Figure 2 The changing structure of the urban core Supporting growth
Within Newcastle city centre, city centre will also support
around 150,000 sq. ft. of city centre commercial activity.
space has become marginalised and There are a number of sites actively
largely redundant space for meeting delivering or planning to deliver
the modern needs of retail, much residential units in the city centre,
of which is located around Central including Strawberry Place, Forth
Station. There is a great opportunity Yards and Pilgrim Street. However, in
for regenerating the train station and comparison to regional peers there is
the area surrounding it, which would significantly less Build to Rent (BTR)
have a huge impact on attracting coming forward in Newcastle.
occupiers to the city. The city’s first purpose-built
Whilst the traditional CBD rental scheme, The Forge, is due to
continues to be important, a new open in spring 2019 comprising
breed of occupier is emerging, 280 flats and a full suite of
placing less value on a traditional amenities. There are two other
recognised address or location and schemes coming forward in the city
more focus on quality of working centre, which together will deliver a
environment, amenity and perhaps further 300 rental units.
Retail most importantly, connectivity. The limited level of BTR delivery
Heart Savills What Workers Want Survey in the city is in part due to the
demonstrates that Millennials and relative affordability of housing. This
Generation Z heavily value the limits the level of demand for rented
social aspect of work and therefore accommodation, as many residents
Historic it is critical that there is a variety are able to afford to buy their
Office of amenities available in the nearby own homes.
Core vicinity of a new development to However, provision of rented
retain and attract new occupiers in accommodation remains key
Central the city centre. to satisfying housing need, and
Station Birmingham New Street station’s there is a growing pool of ‘lifestyle
Regeneration redevelopment is a good example of renters’ who are attracted by flexible
this and has provided the city with accommodation located close to
a platform for growth. Over the employment centres and high-
past 12 months key landmark office quality amenities.
buildings in the vicinity of the newly A forward-thinking and targeted
redeveloped Birmingham New Street approach to delivering a mix of
Build to Rent Schemes Station have witnessed some of the uses in the city centre will have a
Construction highest rental growth in the city. positive impact on people wanting
● Planning
With £1.5m of planned investment to live, work and play there and
Key Locations in the station, Newcastle has the ultimately strengthens the demand
■ East Pilgrim Street
■ Helix potential to replicate this strategy. for the existing commercial space
■ Stephenson Quarter Bringing residential back to the located there. ■
■ Quayside
■ Universities
■ Forth Yards
■ Jesmond Three Sixty
■ East Quayside
■ Newcastle General Hospital
■ Strawberry Place
-- Expanding City Centre
Railway Stations
Source Savills Research
6 7
Beyond the City Centre Beyond the City Centre
Housing delivery
in Newcastle
exceeds target
Core Strategy MHCLG Local Delivery
target Housing Need 2017-18
750 p.a. 1,073 2,300
Figure 3 Where next for housing outside of the city centre?
Building momentum
A joined-up strategy across the city will be needed to support
the growing urban core
Housing delivery across Newcastle has and Gosforth, while the city centre Where next?
increased dramatically since hitting is lower value. The lower values in Newcastle upon Tyne is highly
its nadir in 2012-13 when only 65 the city centre potentially present a constrained by the green belt, with
dwellings were completed. In 2015-16, challenge for bringing forward new over a third (35%) of its area currently
net additional dwellings surpassed the urban regeneration schemes. protected. This has made it difficult
1,000 mark for the first time on record. for the council to find unconstrained
This was followed up by over 2,700 and Green belt release land outside of the city’s urban core to
2,300 homes delivered in 2016-17 and Part of Newcastle’s success in deliver new housing to meet its need, as
2017-18 respectively – which are record increasing housing delivery has highlighted by the need to release land
levels for the local authority. come from large-scale developments at Newcastle Great Park and Callerton.
This means that the city is now following green belt release, in The city will need to continue to identify
delivering far in excess of both its particular Newcastle Great Park. The new sites if it is to sustain its current
Core Strategy target, 750 per annum, development started in 2001 and is and forecast strong economic growth.
and MHCLG’s standardised approach currently being bought forward by This raises the inevitable question
to housing need, 1,073; welcome news Persimmon and Taylor Wimpey. of where next?
following a decade of undershooting Over the past five years, the Plans are being brought forward
its targets. This poses Newcastle a development has accounted for almost by Newby and Igloo for new mixed use
somewhat unique challenge among a third (31%) of new-build sales in developments at the former Calders site
major regional cities. Not how to Newcastle upon Tyne. Newcastle Great and East Quayside respectively, which
increase delivery to meet demand, but Park will continue to be an important will regenerate parts of the waterfront.
how to ensure that this level of delivery contributor to the city’s housing ‘But beyond this, Newcastle will likely
continues, so that Newcastle can delivery, with a further phase of 1,200 have to look at further green belt releases
maintain its position as one of the most homes receiving outline planning if it is to support future housing growth
affordable UK core cities. permission in December 2018. within its boundaries.’
Newcastle Housing Status Core Strategy Allocations
Average new-build values in However, Newcastle Great Park If this is not possible then the Developments over 200 units
Newcastle were £196,000 in the 12 isn’t the only large-scale development city council will have to look beyond 200 to 400
● Outline Application ■ Callerton
months to September 2018, which is coming forward on land formerly in its own borders. Here it will need to ● Outline Permission ■ Newbiggin Hall
400 to 600
● Full Application ■ Kingston Park & Kenton Bank Foot
marginally higher than second-hand the green belt. In 2015, the council co-operate with its partners in the North
values which were £191,000 over the released land around Callerton for a of Tyne devolution to deliver
600 to 800 ●
●
Full Permission
Under Construction
same period. 3,000 home development, the first new housing in their authorities that 800 to 1,000
■ Green Belt
Values across Newcastle are highest phase of which is due to start on site are properly connected to the city’s Over 1,000
around the urban fringe and in Jesmond this year. employment centres. ■ Source Savills Research, Glenigan
8 9
Industrial Outlook & Forecasts
Landlords and developers would be advised
to consider speculative development of good
quality industrial space
Rising demand
from industry
The growth of the Industrial market
in the UK is well documented and
in the most part has been driven by
notwithstanding current geo-political
sensitivities around Brexit, we expect
major suppliers to the automotive 2.2% Plenty of positives
the continued growth of online retail, sector to continue to locate in the rents to rise in
which in November 2018 set a new region, which will be amplified as R&D
With above-average growth forecasts for homes and a new wave of city
North East
record with 21.4% of all retail sales progresses into alternative fuel vehicles. centre regeneration schemes, the signs are encouraging for Newcastle
p.a. by 2023
being recorded online. Research from Lastly, we expect to keep a watchful
Prologis states that for every additional eye on the progress of HS2, and in Residential
€1bn spent online an extra 770,000 sq. particular when the contract awards
With house prices in the North only investment demand from both it to expand outward. Each of these
ft. of warehouse space is required. for the rolling stock construction are
Until recently the North East may made. The North East already benefits recently returning to pre-credit institutional and private investors. schemes is offering something different
have felt comparatively overlooked from the assembly of trains in Newton crunch levels, there is more capacity We forecast five-year compound house providing space which will complement
when it came to benefitting from this Aycliffe and if further awards were to for both household finances and price growth of 17.6% in the North one another rather than compete. While
surge in demand; however, 2018 saw be made this would again benefit local mortgage lenders to support growth East, outperforming the UK. top rents have remained static at around
a sea change as Amazon committed suppliers and the supply chain that over the next five years than in £23 per sq. ft. over the last five years,
to over 3m sq. ft. of warehouse space goes with it.
other regions across the UK. Smaller Commercial we expect to see rental growth of 6% by
in the wider North East, taking build-to- However, the supply of warehousing
suit facilities in Durham and Darlington.
Combined with regular market churn
has fallen to just over 8m sq. ft. in
the wider region, a fall of 37% since
37% deposits for first-time buyers and
lower home-mover loan-to-income
After a decade of limited developments
within Newcastle’s core, the cranes
2022 as new developments complete.
The implications of a forward-
fall since ratios compared with most of the rest are now firmly back on the horizon. thinking and targeted approach to
this meant that for units over 10,000 2011, and much of this vacancy is of
sq. ft. a new take-up record of 4.7m sq. grade B & C quality and arguably 2011 of of the UK are expected to underpin Newcastle is seeing a new wave of mixed enhancing mixed use schemes will have
ft. was set. not fit for purpose in today’s modern warehousing demand in the owner occupier market. use city centre regeneration schemes, a positive impact on people wanting to
Not only will this change the manufacturing and retail supply chains. availability Meanwhile, we expect the ability to including the Helix, East Pilgrim Street live, work and play there and ultimately
perception of the market to many but With rents in the North East
achieve higher income yields in the and Stephenson Quarter, which is strengthens the demand for the existing
we anticipate suppliers into Amazon to set to rise by 2.2% a year by 2023,
northern cities to underpin revitalising the urban core and enabling commercial space located there. ■
require space as has happened in other in percentage terms more than many
regions when packaging suppliers, for other established regions in the UK,
example, take warehouse space close landlords and developers would
Figure 4 Residential values annual change forecasts
to their fulfilment centres. be advised to consider speculative
The wider North East region is also development of good quality industrial
5-year
benefitting from the agglomeration space or the refurbishment of 2019 2020 2021 2022 2023 compound
effect of having major car second hand stock to bring it to growth
manufacturing in the region, and modern standards. ■
14.8%
UK mainstream
1.5% 4.0% 3.0% 2.5% 3.0%
3m sq. ft. North East 17.6%
21.4% warehouse space
for Amazon in
2.0% 5.0% 3.5% 2.5% 3.5%
Source Savills Research
1bn
of retail sales North East
online
spent online requires
770,000 sq. ft.
There is more capacity for both household finances and mortgage lenders
of warehousing to support growth over the next five years than in other regions across the UK
10 11
Savills Research
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