The state of play in Newcastle CBD’s office market
Sydney’s growth must be spilling north because Newcastle is quickly becoming one of Australia’s most promising cities. The latest .id data shows that this is so, revealing Newcastle as one of the country’s fastest growing areas in terms of population.
Employment in service and white collar industries are contributing to solid economic growth, proving that the city is no longer just a steel producer or a port town. Economic Profile estimates that there are almost 90,000 jobs in the city, and with more and more white collar employment by the year – demand for office space is quickly increasing.
To help make sure your next purchase, lease or investment in Newcastle is the right one, we’ve had a closer look at the burgeoning office market here with the help of specialist Ray White research.
Newcastle: A city on the rise
New infrastructure projects are revitalising the city from the ground up.
New infrastructure projects are revitalising the city from the ground up and the Hunter Mall precinct redevelopment is looking to transform this underused area into a housing, employment and recreation centre. Early 2017 is an incredibly exciting time to live, work and invest in Newcastle.
This is likely to breathe new life into this area of the city, providing better connectivity with transport and the workforce in the area. This, and countless other signifiers of growth, tell us that 2017 is going to be an active and positive year in commercial property.
Net absorption recovers
There are a few large scale developments in the pipeline, including space at Stage Two at the Gateway, most of which will likely be fully committed by the time they hit the market. If you’re looking for space, the market is increasingly competitive, so make sure you’ve got the best help you can get.
Addition of new stock and lukewarm demand meant that the year ending January 2016 saw around 17,000sqm of vacant space added to the market. Happily, that quickly changed in 2017 with positive absorption of 12,504sqm .
This is thanks in part to large supply additions, including the towers at 18 Honeysuckle Drive and property on Parry Street, that were fully tenanted upon completion. We’re seeing increasingly strong demand in the area, and supply is struggling to keep up.
There are a few large scale developments in the pipeline, most of which will likely be fully committed by the time they hit the market.
High net absorption is putting downward pressure on vacancies, dropping the citywide average from 13 per cent in 2015 to 9.3 per cent in 2016. This leaves a total of 12,183sqm of empty office space.
A-grade and D-grade stock have the lowest vacancy rates with 8.6 and 7.1 per cent respectively. B and C-grade, on the other hand, had average vacancies exceeding 11 per cent, meaning that investors without large cash reserves should look closely at A-grade in particular for a more reliable rental income.
Businesses who are happy to work in B and C-grade office spaces may find it easier to bargain for a better deal, and find suitable space thanks to the high vacancy rates in those sectors.
Steady rental increases
Rents in Newcastle’s office market have remained fairly flat for almost 10 years. However, improving vacancies and overall sentiment have bucked the trend and resulted in a moderate increase in the average rents. In such a fast growing area these rents offer incredible value, and with the right agent on your side, finding affordable space that suits your every need is always possible.
Prime rents average $335/sqm but range up to $420/sqm. These numbers were buoyed by Mine Wealth + Wellbeing and Suncorp moving into prime space in the area. Secondary rents on the other hand are far more affordable at an average of $245/sqm but also as low as $150/sqm.
Rents in Newcastle’s office market have remained fairly flat for almost 10 years.
Just as you’d expect, red-hot demand and limited supply are causing average rents for office space in the Newcastle area to steadily compress. High sales turnover and a low interest rate environment have helped drop yields on prime real estate down to an average of 6.9 per cent.
Secondary assets have experienced a sharper decline, falling from over 11.3 per cent in 2013 to only 8.85 per cent. Despite decreases in yields city-wide, it’s still possible to find prime assets yielding as much as 10 per cent with the right knowledge and the help of an experienced local agent.
Newcastle’s office and commercial market are showing countless signs that point towards a promising future. With the right professional help from a trusted advisor and a little bit of know-how, investors, renters, and owner occupiers can all profit from a market that’s only going up from here.