‘Flight to quality’ driving office deals, says Knight Frank

Slightly less than 400,000 sq ft of office space was let across the region in the first six months of 2023, said the consultancy, marginally down on 2022’s figure.

Knight Frank said that total office take-up in the North East for H1 2023 was 397,117 sq ft, compared to 400,358 sq ft in 2022’s first half.

The main takeaway, said the firm, is that the vast majority of city centre lettings are for either brand new or premium quality refurbished offices.

Patrick Matheson, partner at Knight Frank, said: “The flight to quality and ESG, especially in relation to sustainability and staff attraction and retention, are playing a much more central role in occupier decision-making this year.”

Notable lettings in the city centre in H1 were Barclays and Oliver Wyman committing to Newcastle’s newest grade A space at Bank House; Central Employment signing for 8,131 sq ft at the newly refurbished Portland House; and Armstrong Watson taking 4,500 sq ft at the recently completed One Strawberry Lane.

Barclays will move its regional operation to 5,000 sq ft at the building later this year following a deal announced in June.

Overall, the number of Newcastle city centre deals fell in Q2 to 10 transactions from 15 transactions in Q1, but the average size of the deals increased from 2,678 sq ft to 4,605 sq ft.

A story that continues to strengthen is the rise of the Sunderland market, said Matheson.

He observed: “Sunderland continues to be an attractive location due to the high quality of its buildings, amenity and transport links. This is evidenced by the Q2 lettings at the Beam to Apexon for 5,440 sq ft and Computershare taking 8,860 sq ft at Rainton Bridge in Houghton-le-Spring.

“There are several further occupiers under offer in Sunderland, including several within the city centre at Riverside Sunderland.”

Riverside Sunderland’s flagship office components are the L&G-funded Maker and Faber buildings, which will bring 150,000 sq ft of grade A space to the local market in 2024.

In the out-of-town market, there was 172,000 sq ft. of take-up, rising above the Q1 figure of 138,000 sq ft, as the volume of deals rose from 29 to 37.

Matheson continued: “We expect that Q3 will see a continued movement towards the best quality office space, evidenced by strong occupier interest at 1 Citygate, Wellbar Central and Bank House.

“What we are seeing in the North East region reflects what our recent Your Space survey of 640 companies found which is that the gap between firms’ ESG ambitions and their real estate decisions is slowly closing.

“Fifty percent of businesses surveyed said that their commercial property decisions over the next three years will be influenced by ESG to a ‘moderate extent’ and 20% to a ‘great extent’,” he concluded.