August 2006

                          GVA Lamb & Edge
                          Yorkshire Chambers
                          112/118 Pilgrim Street
                          Newcastle upon Tyne
                          NE1 6LL

                          0870 900 8990
                                                                 NEWCASTLE CITY COUNCIL
                                                                        OFFICE MARKET STUDY

Ouseburn Office Study


October 2006

Contact: Michael Cuthbertson
Tel: 0191 269 0507
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CONTENTS                                                               PAGE NO








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        We have been instructed by Newcastle City Council to consider the market for office accommodation
        in the Ouseburn Regeneration Area and its financial viability.

        Briefly, the Study is structured as follows:

        Section 2    Policy Review

        The planning policy review establishes the policy drivers impacting upon the Newcastle office market
        specifically and the wider policy influences on the supply of office accommodation across the region.
        Finally we look at the regeneration framework for the Ouseburn.

        Section 3    Economic Context.

        The state and prospects of the national and regional economy are considered identifying economic
        drivers with forecasts for key sectors, particularly focussing on the employment outputs of sub-
        sectors that would underpin office demand in the City and in Ouseburn.

        Section 4 Newcastle Office Market Overview

        This commentary brings the study down to a local level. It presents the state of the market at the time
        of writing detailing deals and developments. The performance of the market in terms of rent and yield
        are considered together with available supply, take up and quality.

        Section 5 Newcastle Office Market Supply

        Building upon the high level consideration of supply in the previous section, we have recorded all
        existing available stock and analysed it from a qualitative and quantitative viewpoint. The pipeline of
        new stock is considered before going on to look at already identified and potential development sites.

        Section 6 Office Development in Ouseburn

        We consider the existing and potential demand for offices in Ouseburn and its financial viability.

        Section 7 Summary and Conclusions

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        This section of the report provides a review of current and emerging planning policy at the national,
        regional and local level. At each level, the key policy drivers impacting upon the office market and
        supply of office accommodation are identified.


        Planning Policy Statements (PPS‟s) set out the Government‟s national policies and principles on
        different aspects of planning.

        There are two key National Planning Policy Statements that are of relevance to this study. These

                  PPS6 – Planning for Town Centres; and

                  PPS4 – Industrial, Commercial Development and Small Firms.

        The key policy facets within each of these documents are identified and analysed below, drawing
        specific attention to strategic planning issues that have an affect upon future developments within the
        office sector.

        PPS6 - Planning for Town Centres

        Role and Status of PPS 6

        PPS6 sets out the Government‟s policy on planning for the future of town centres. Adopted in March
        2005, it replaced the revised PPG Note 6: Town Centres and Retail Developments (published 1996)
        and subsequent policy statements.

        Key Policy Facets

        The Governments Objectives

        The Government‟s key objective for town centres is to promote their vitality and viability by planning,
        promoting and enhancing growth and development in existing centres. This is consistent with the
        wider objectives of encouraging investment to create additional employment opportunities and
        promoting economic growth of regional, sub-regional and local economies.

        A Plan-Led Approach

        In order to deliver the Government‟s objective of promoting viable town centres, development should
        be focused in existing centres in order to strengthen and regenerate them.

        PPS 6 identifies that it is the role of regional planning bodies and local authorities to actively promote
        growth and manage and accommodate change in town centres.

        Regional plans should outline the centres of regional and sub-regional significance and encourage
        growth within these areas and assess the overall need for additional floorspace, especially for office

        Local planning authorities should also assess the need for new floorspace for office development,
        identifying deficiencies in provision, and assessing the capacity of existing centres to accommodate
        new development.

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This indicates that the Government is concerned to ensure that efficient use should be made of land within
centres and elsewhere and so encourage well-designed, higher-density, multi-storey developments within and
around existing centres. The policy states;

                     ‘Subject to other planning consideration, residential or office development should be
                     encouraged as appropriate uses above ground floor retail, leisure or other facilities within
                     centres‟. (Para 2.21)

         In selecting sites for allocation, the following key factors must be taken into consideration:

              The need for development;

              The appropriate scale of development;

              Application of the sequential approach;

              The Impacts; and

              Locational accessibility;

         With regards to the former of these points, PPS 6 states that local needs assessments should be
         carried out as part of the plan preparation and review process. An assessment of the need for new
         office floorspace at the regional level should involve the forecasting of future employment levels and
         the identification of suitable broad locations where regionally significant office development should be

At the local level

„Local needs assessments for office space will need to be informed by regional assessments and will form
part of the evidence base for development plan documents. The physical capacity of centres to accommodate
new office development and the town centre‟s role in the hierarchy should also be relevant to planning for new
office development‟. (Para 2.39)

Development Control

         PP6 also sets out the relevant considerations that should be given to planning applications in town

         Applicants will need to demonstrate:

The need for development;

              That the development is of an appropriate scale;

              That there are no more central sites for the development;

              That there are no unacceptable impacts on existing centres;

              That locations are accessible

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Monitoring and Review

        Comprehensive and up-to-date monitoring is vital to the effective planning and management of office
        development in town centre locations.

        In order to measure the vitality and viability and monitor office development within their town centres,
        local authorities should consider the following:

        The amount of space in use for different functions, such as offices;

        The amount of office space in edge-of-centre and out-of-centre locations; and

        The commercial yields on non-domestic property, which demonstrates the confidence of investors in
        the long-term profitability of the centre for office and other commercial developments.

PPS4 – Industrial and Commercial Development

Role and Status of PPS4

        PPS4 was adopted in November 1992. It sets out the Governments key aims in pursuing economic
        growth alongside a high quality environment. Development plans provide the policy framework,
        weighing the importance of industrial and commercial development with that of maintaining and
        improving environmental quality.

Key Policy Facets

Development plans

        PPS4 emphasises the need for development plans to allow for choice, flexibility and competition.
        Sufficient land should be available which is readily available to meet differing needs.

        Development plans should:

              Encourage new developments in locations which minimise the length and number of trips;

              Encourage new development in locations that can be served by more energy efficient modes of
               transport (this is particularly important in the case of offices, likely to have a large number of

              Discourage development where it would be likely to add unacceptably to congestion.

              Locate development requiring access mainly to local roads away from trunk roads.

Mixed uses

        Mixed use development and the re-use of under-used or vacant urban land are also encouraged.

        Due to the evolving characteristics of industry and commerce, many businesses can be carried out in
        rural and residential areas without causing unacceptable adverse effects.

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        Applications for industrial and commercial development in these areas will be assessed against a
        range of factors such as the scale of the development, the nature of the use of the site and its

        Planning authorities also need to carefully consider the juxtaposition of new development with
        existing industrial and commercial activities.

Re-Use of Urban Land

        Many urban areas contain large amounts of under-used or vacant land. Getting vacant land back into
        beneficial use is important to the regeneration of towns and cities.

        ‘Optimum use should be made of potential sites and existing premises in inner cities and other urban
        areas‟. (Para 21)

        Local authorities have a major part to play releasing under-used or vacant sites.

The Imposition of Conditions

        Conditions are sometimes imposed on new developments to confine the occupation of commercial or
        industrial premises to local firms.


        Consideration is given here to the latest regional planning policy, including any relevant responses to
        such strategies. Eight key documents are analysed:

              Regional Economic Strategy (RES) (2002)

              Regional Economic Strategy Technical Background Paper No 2 (2005)

              Consultation Draft Regional Economic Strategy (RES) (2006)

              The Northern Way Growth Strategy

              Regional Planning Guidance 1 (RPG 1) – The North East

              Draft Regional Spatial Strategy 1 (RSS 1) - View: Shaping the North East

              Examination in Public into RSS for the NorthEast - Statements of the Tyne and Wear Authorities.

        Each of these documents will be analysed in terms of key policy drivers that will have an impact on
        the supply of office accommodation across the region and, more specifically, the Newcastle office

Regional Economic Strategy (2002) ‘Realising our Potential’

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Role and Status of RES

        „Realising our Potential‟ is the current Regional Economic strategy for the North East.

        Adopted in 2002 by One North East, the Regional Development Agency covering the North East
        region of England, it has been important in setting the context for the economic development and
        capacity within the Region.

Key Issues

        The strategy itself sets out six interdependent objectives, one of that includes the aspiration to „meet
        21 century transport, communication and property needs‟.

        One of the key points within this objective is to provide a portfolio of high quality sites and buildings
        within the Region, addressing the fact that „in parts of the Region there is significant shortage of
        modern office premises and incubator units‟.

        Investments to increase the supply of such units are promoted so as to meet the needs of
        entrepreneurs and businesses throughout the Region.

        A region wide endorsement and co-ordination of quality sites has been undertaken, identifying
        strategic locations to provide high quality sites and buildings, providing new bases for expanding
        indigenous businesses and inward investors.

        The strategy states that the Tyne and Wear sub-regional area will benefit from many of the Region‟s
        efforts to secure investments to provide a 21 Century property portfolio. Within Newcastle
        specifically, there are two sites, Newcastle Great Park and Newburn Riverside, that have been
        identified as key areas for business and property related developments.

Regional Economic Strategy Technical Background Paper No 2 – Delivering Economic Prosperity &

Role and Status Technical Background Paper

        The purpose of the paper is to provide technical background on economic development; to inform the
        RSS policy framework.

        It identifies changes that the regional economy has experienced and identifies economic prospects
        and growth predictions. In addition a quantitative and qualitative assessment of the region‟s sites and
        premises portfolio was undertaken, identifying issues that impact upon the future supply and
        requirements for office land and accommodation.

Key Issues

        With the recognition of an over-provision of employment land across the region, a full review of
        employment land provision across the region was undertaken.

        The analysis identified an overall requirement for fewer sites and the need to focus on improving the
        quality of supply. In terms of office premises, the following points were made:

              A general under-supply of good quality office accommodation across the region, particularly of a
               sufficient standard to compete for mobile inward investment demand. This is particularly the
               case in Newcastle and surrounding business parks where demand is currently strongest and
               where the potential to attract inward investment in the office sector is highest. This shortage
               reflects the lack of speculative development, which means that significant enquiries have to
               focus on existing buildings or the pre-let market.

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              A notable lack of more sophisticated research and development or science/technology park
               accommodation linked to the region‟s universities.

              There is a general oversupply of poor quality stock that is ill suited to current user requirements
               and for which demand is low. Much of this stock is also effectively obsolete.

Draft Regional Economic Strategy (Consultation Draft April 2006) ‘Leading the Way’

Role and Status of Draft RES

        Since 2002, when the previous Economic Strategy was produced, there have been significant
        changes - in the world economy, in the UK and in the region itself.

        It is therefore essential that the North East identifies what has been implemented in the past, what
        has worked and what has not and plans its future course accordingly to prepare for opportunities and
        threats ahead.

        Therefore, a new draft Regional Economic Strategy, titled „Leading the Way‟, has been developed
        which is currently undergoing an Examination in Public. Following this initial consultation, proposed
        modifications will be published (autumn 2006), with an anticipated adoption date of Spring 2007.

        This Regional Economic Strategy sets out „how we are going to deliver greater and sustainable
        prosperity to all the people of the North East over the period to 2016‟. The city regions concept has
        strongly influenced the detail of the interventions within this document.

Key Issues

        The strategy identifies that travel to work patterns commuting patterns within the North East centre
        around two city regions: Tyne and Wear and Tees Valley. The conurbations at the heart of these two
        city regions offer the region‟s core labour markets alongside the location of major employment
        centres. The Tyne and Wear city region is based on the travel to work area that includes the urban
        centre of Newcastle.

        The RES advocates that strengthening the urban core of the Tyne and Wear city region, particularly
        Newcastle, is key to tackling its current under-performance. There is significant potential for growth in
        this locale, but strategically targeted investment is required to realise its benefits as a key spatial
        driver of the region‟s economy.

        One of the key areas for action within the strategy is „Place‟ and the importance of „Delivering a
        portfolio of high quality business accommodation‟.

        The strategy states that „in delivering a portfolio of high quality business accommodation, we are
        aiming to ensure that the region‟s current and future businesses have access to high quality and well
        located business premises‟.

        Therefore, in investing in place the North East must:

              Ensure provision of appropriate and high quality sites, business premises, ICT connectivity and
               transport infrastructure to enable access to labour markets and markets, to support
               manufacturing and service sectors key to the region‟s economy.

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              Support restructuring of the region‟s economy by providing the physical infrastructure key to
               strengthening the development of the knowledge based economy.

        The strategy identifies good quality business locations as having the following characteristics:

              fit for purpose and efficient sites and premises;

              strategic and local linkages to markets for goods and products; and

              attractiveness and access to appropriately skilled staff.

        Newcastle Gateshead has been identified as a key location to economic development within the
        Tyne and Wear City region over the next ten years. Priorities include Science City and the Discovery
        Quarter in Newcastle.

The Northern Way Growth Strategy

Role and Status

        The Northern Way Growth Strategy aims to establish the North of England as an area of exceptional
        opportunity, with a world class economy and a superb quality of life.

        The Growth Strategy aims to tackle the £30 billion output gap between the North of England and the
        rest of the UK by building on the assets of the three regions, including the North East, to transform
        the North‟s economy.

        An initial document titled „Moving Forward – The Northern Way‟ was produced in September 2004,
        which identified eight City Regions, which Tyne and Wear is one, where most of the economic
        activity in the North takes place. It sets out the preliminary strategy for bridging the output gap and
        identifies ten key investment priorities for the northern region.

        This has subsequently evolved into a Business Plan for the period 2005-2008, which was published
        in June 2005, which aims to bring together the various City Region Development Programmes
        (CRDPs) that have been developed, with the ten key priorities identified in the strategy.

Key Issues

        The ten priorities within the Northern way growth strategy include: access and linkages; skills and
        employment; innovation, entrepreneurship and knowledge development; airport, sea port and transit
        systems and access improvements; and growth and sustainable communities.

        It is anticipated that enhancing these key areas will strengthen the North‟s competitive advantage as
        a location for businesses.

        Whilst these set out the overarching priorities which wrap around the whole Northern region, there
        are also key objectives for each of the City Regions.

        The vision for the Tyne and Wear City region, within which Newcastle lies, is „to create more
        sustainable communities and accelerate economic growth within a Knowledge Economy‟.

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        Two key priorities for action within this City Region can be identified:

              Business Matters - supporting innovation through cross cutting programmes to grow the
               knowledge economy with Newcastle Science City as a central initiative for the City Region as a

              Place Matters - meet SME growth requirements in key sectors and locations.

RPG 1 – The North East (2002)

Role and Status of RPG 1

        RPG 1 was adopted in November 2002. The importance of RPG1 is that it provides the overall vision
        and strategy that promotes a coherent framework of regional development.

        One of the main aims of the strategy is to facilitate the provision of an effective employment land
        portfolio of good quality attractive employment and business sites and premises to meet the needs of

Key Policies

        The key policies from RPG 1 that affect the supply and location of office development across the
        region and within Local Authority areas have been identified under two main categories.

        Firstly, there are a number of overarching strategic polices that aim to guide economic development.
        These include:

                  Policy DP1 – Sequential Approach to Development; and

                  Policy DP2 – Sustainability Criteria.

        The second set of policies are more specific and aim to create the right conditions to allow industry
        and business to flourish. They aim to provide a range of sites in terms of their size and location, to
        contribute to a well-structured portfolio of attractive, serviced employment sites that are well located
        to serve existing communities.

        Such policies include:

                  Policy EL1 - Regional Employment Land Survey;

                  Policy EL2 – Reassessment of Current Employment Land Allocations;

                  Policy EL3 – Renewal and Modernising of Existing Employment Areas;

                  Policy EL5 – Business Clusters; and

                  Policy EL6 – ICT Services.

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Policy Review

        Analysis of these key policies is provided below.

Policy DP1 – Sequential Approach to Development

        A sequential approach to the selection of sites should be adopted for the allocation of land for
        development in order to ensure that it is located in the most sustainable locations.

        Priority should be given to the re-use of previously-developed land and other sites within established
        urban areas taking into account the need to provide a high quality environment and community
        facilities and services, including recreational and other public open space. The aim in all localities is
        to achieve balanced development and mix of uses that reduce the need to travel.

        In addition, the policy states:

        „All sites should be in locations that are, or will be, well related to homes, jobs and services by all
        modes of transport, in particular public transport, walking and cycling‟.

Policy DP2 – Sustainability Criteria.

        This policy sets out the criteria that should be taken into account in assessing the suitability of land
        for development in accordance with the sequential approach set out in Policy DP1 outlined above.

        The key economic considerations that would affect the location and supply of office space across the
        region include:

              the economic viability of the development of the site;

              the suitability of sites for mixed use development; and

              the contribution that development might make to the strengthening of local communities.

Policy EL1 - Regional Employment Land Survey

        The key objectives for the regional economy include the need to increase and broaden employment
        opportunities and to develop appropriate infrastructure to facilitate this objective.

        A range of employment sites should therefore be available within each Local Authority area to
        encourage this and allow industry and business to flourish.

        During 1999/2000 there were some 4,833 hectares of land allocated for business/industrial
        development across the region. Land allocations are set only at the sub-regional level, with Tyne and
        Wear being allocated 887 hectares of employment land.

        Alongside this land allocation there are a number of strategic employment sites. The 80 hectares of
        land at Newcastle Great Park is allocated as a Premier Division Strategic Site.

        Despite these allocations, it is recognised that there is a general over-provision of employment land
        and that the strategy will require a different approach in the future to the allocation of employment

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        Consequently Policy EL1 states that „a Regional Employment Land Survey (RELS) must be
        undertaken to assess the market potential of employment sites‟.

Policy EL2 – Reassessment of Current Employment Land Allocations

        Existing employment land allocations will be able to meet the majority of industrial land and business
        requirements over the planned period.

        The policy states that each Local Authority should undertake a rigorous assessment of the amount of
        employment land needed in order to:

                  make provision for good quality land for employment uses which is sufficient to provide
                   flexibility, choice and recognises business requirements;

                  ensure that a range of varied sites in terms of size, quality, distribution and quality are
                   offered having regard to policies DP1 and DP2.

        It also states that sites which are identified in the RELS as having no prospect of being developed
        should be re-allocated or de-allocated.

Policy EL3 – Renewal and Modernising of Existing Employment Areas

        In order to remove constraints and ensure that sites are readily available for development, Policy EL3
        states that Development Plans should:

                  facilitate the renewal and modernising of existing employment areas;

                  assess the feasibility for removing constraints from sites within existing employment areas;

                  protect key employment areas from inappropriate development;

                  protect those employment areas with high public transport accessibility or those with firm
                   proposals to improve public transport accessibility; and

                  assess the potential to improve access to employment areas.

Policy EL5 – Business Clusters

        Clusters are geographical concentrations of interconnected companies and institutions that compete
        but also co-operate. For example, Newcastle Great Park is identified as a cluster location where
        software development activities will be attracted.

        The policy states that „sites should make use of successful existing employment areas in the locality
        as these can form an integral part of Innovative Cluster Areas, providing space for support industries,
        production space as well as essential links to assist existing companies to be drawn into worthwhile
        partnering or cluster activity‟.

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Policy EL6 – ICT Services.

        The availability of ICT facilities is important in creating new employment, influencing business
        location, and extending opportunities in the region.

        The policy therefore states that strategies should seek to provide flexible responses to rapidly
        changing demands for the location of ICT businesses. In particular, strategies should „seek to identify
        a variety of sites for high quality development‟.

RSS 1 – View: Shaping the NorthEast (2005)

Role and Status of RSS 1

        The RSS Submission Draft Document for the North East was published in June 2005. An
        Examination in Public (EiP) is currently being held between March and April 2006, at the request of
        the First Secretary of State, to discuss and test the Submission Draft.

        The EiP Panel Report will be published in June 2006, with the proposed modification document being
        published in autumn. It is anticipated that the RSS will be adopted in spring 2007 following a 12-week
        public consultation period.

        Although the current RSS is only in draft form, it is both founded on and builds upon previous work
        undertaken to review and update RPG1 with the RSS and therefore provides a good indication of
        future statutory policy.

        The RSS intends to provide clear guidance and certainty into how the North East region will develop
        over the next 15-20 years. Some policies have an end date of 2021, but overall they are intended to
        guide development over a longer timescale.

        It is primarily concerned with the scale location and phasing of development, including the
        identification of priorities for economic development.

Key Policies

        The key policies from the emerging RSS that affect the supply and location of office development
        across the region and within Local Authority areas can again be considered within two categories.

        These include the overarching strategic polices and the more specific policies that aim to guide
        economic development patterns.

        Polices that set out the general development principles and locational strategies that would have an
        effect upon the development and location of employment land at both regional and city level include:

                  Policy 2 – Sustainable Development

                  Policy 3 – The Sequential Approach to Development

                  Policy 4 – Phasing and Plan, Monitor and Manage

                  Policy 5 – Locational Strategy

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                  Policy 6 – The Tyne and Wear City Region

                  Policy 14 – Embracing Further and Higher Education

        Key policies relating specifically to the regions employment portfolio/land include:

                  Policy 18 - Employment Land Portfolio

                  Policy 19 – Prestige Employment Sites

                  Policy 20 – Reserve Sites

                  Policy 21 – Airports

        Each of the policies are outlined in more detail below, highlighting and drawing specific attention to
        policy references which will impact upon Newcastle.

Policy Review

        The RSS Submission Draft provides more fully developed sub-regional elements and further detailed
        land allocations than RPG1.

        The designation of sites within the revised RSS follows an examination of past rates of development,
        projected needs and an assessment of market conditions.

        This has provided a baseline of information upon which the policies within the current Draft RSS has
        been drawn.

Policy 2 - Sustainable Development

        The emerging RSS is clear in stating that the principles of sustainable development should underpin
        all strategies and form the basis for individual decisions that affect the region. Sustainable
        construction and development principles should be achieved through the delivery of environmental,
        social and economic objectives.

        The key economic objectives within this policy include:

              To ensure high and stable levels of employment;

              To achieve high and sustainable levels of economic growth by focusing on the regions strengths
               and alleviating weaknesses;

              To support the use of local labour, materials and produce to reduce adverse impacts of
               economic growth.

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Policy 3 - The Sequential Approach to Development

        Following National policy advice, a sequential approach to the identification of sites for development
        should be taken. This should recognise the need to make best use of land and buildings.

        Policy 3 sets out a regional sequential approach to guide the location of new development in the
        North East.

        It states that priority should be given to previously developed land and buildings in the most
        sustainable locations. Locations should be selected in the following priority order:

                  Suitable previously developed land in urban areas, particularly around public transport

                  Other suitable locations within urban areas with no environmental, heritage, conservation or
                   recreational merit.

                  Suitable locations in adjoining urban areas, particularly previously developed land and

                  Suitable sites in settlements outside urban areas, particularly previously developed land and

Policy 4 – Phasing and Plan, Monitor and Manage

        The application of plan, monitor, manage and phasing approaches are essential to ensure effective
        delivery and a responsive approach to changing circumstances at regional and local level.

        The policy clearly states that an Annual Monitoring Report will be produced. However, if there is a
        significant change in key indicators, such as employment rates and employment land provision and
        take up, this will necessitate a partial or full review of the RSS.

        In relation to the release of land for employment within the region, local authorities will develop a
        phasing policy approach for the release of employment land to better prioritise key employment sites
        and economic investment.

         The policy explicitly states

                   „Local Development Frameworks shall plan for the managed release of development in the
                   periods 2004-11; 2011-16 and 2016-21, based on:….

        e)         an employment land supply that is prioritised in order of its phased release‟

        This phasing approach shall be reviewed every five years.

Policy 5 – Locational Strategy

        The North East exhibits a polycentric settlement pattern based upon two city regions, one of which is
        Tyne and Wear, the key economic driver within the region.

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        Major cities within this city region, such as Newcastle, will continue to be economic drivers within this
        city region and will be where the majority of existing and future employment opportunities will be

        The policy reinforces this concentration of economic development and growth as it states that plans,
        strategies and programmes should incorporate the locational strategy to maximise the major assets
        available in the North East. More specifically it states that this should be achieved through

        a)        supporting the polycentric development and redevelopment of the Tyne and Wear city
                 region and the Tees Valley city region by concentrating the majority of new development in
                 the conurbations and main towns, particularly within the core areas‟.

        However, the Policy also states that plans and strategies should

        b)        allow development appropriate in scale within the town in the regeneration areas and rural
                 service centres within Tyne and Wear and Tees Valley City regions‟.

Policy 6 – The Tyne and Wear City Region

        As outlined in Policy 5, Newcastle is one of two core areas within Tyne and Wear. Newcastle‟s
        sphere of influence extends over the whole city and beyond, acting as a regional centre for
        employment „which is by far the most significant employment location in the region‟.

        The city region has a complex labour market and land use pattern with an overlapping series of
        labour markets and diverse population and employment origins and destinations. These include both
        city and town centres and industrial and commercial estates such as Newburn Riverside in

        Newcastle draws by far the greatest number of commuters from throughout the city region and
        beyond, with 62% arriving from adjacent areas of Tyne and Wear. This reflects its strategic role as a
        regional employment location and centre for higher order business services and higher education.

        „Science City Newcastle‟ is a knowledge economy initiative at the heart of science and technology
        development within the city region. Initial activity will concentrate on the western area of Newcastle
        City Centre with facilities developed to accommodate spin off businesses in a form that maximises
        work and information flows between academic and business sectors.

        The emerging growth sectors as well as the creative and digital industries and professional services
        tend to be small-medium sized enterprises which will require smaller higher quality premises either
        within or adjoining existing city and town centres.

        Other sectors such as contact centres, which are primarily based in Newcastle are significant
        employers in the city region and continue to show signs of growth.

        As a result the city region requires a portfolio of land and premises fit for purpose to cater for varying
        growth needs. New knowledge based accommodation and office uses should primarily be located
        within and close to city and town centres.

        It is important that growth is centred in the conurbations where the major jobs, services and facilities
        exist and accessibility is greatest. A key growth corridor follows the River Tyne, through central
        Newcastle-Gateshead to the mouth of the Tyne. It provides a range of opportunities to cater for
        business growth in centres such as Newcastle and Newcastle Great Park.

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        In order to pursue these economic drivers, Policy 6 states a number of objectives to achieve
        economic prosperity. Those of relevance to this study include:

        e)          focusing   the   majority   of   new    economic    development     on   the   city   centres   of
                    Newcastle……Newcastle Great Park, Newburn Riverside, Newcastle….

        f)           supporting the Science City Newcastle initiative, focusing development on the western
                    areas of Newcastle for science and technology development and developing a network of
                    complimentary nodes…

        g)          continuing to support the influential economic role of the four universities in the city

        h)           focusing new knowledge based Small Medium Enterprise accommodation and offices
                    within and adjacent to Newcastle and Sunderland City centres, with provision in
                    regeneration centres and rural service centres to meet local needs‟.

Policy 14 – Embracing Further and Higher Education

        The policy states that the increasing role of universities, colleges and Centres of Excellence will:

        a)     play a pivotal role in the transition to higher productivity and a knowledge based economy.
               Stronger links must be forced with existing and new commerce;

        b)     encourage greater links with local businesses;

        c)     support the Science City Newcastle concept; and

        d)     assist existing and new companies to take advantage of partnering opportunities and/or cluster

Policy 18 - Employment Land Portfolio

        The scale and quality of employment land provision should assist economic growth in the region. In
        addition, the distribution of such land must aim to create employment in places that are economically
        competitive and close to local workforces, reflecting the RSS locational Strategy.

        Approximately 5,000 hectares of land across the region has been allocated for employment,
        however, up to 365 hectares of this could potentially be de-allocated. In addition, 1,560 hectares of
        this land is restricted for particular purposes such as airport and port expansion and inward
        investment. Therefore, there is approximately 3,185 hectares of employment land for general
        employment, brownfield and mixed-use developments and Prestige Employment land.

        The policy clearly states the appropriate provision of such land within each sub-region and local

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        Across Tyne and Wear the total allocated employment land supply is 815 hectares. This is broken
        down into a series of employment land types, with the amount allocated specifically within Newcastle
        also indicated.

            Area                   General           Regional Brownfield    Prestige              Total
                                   Employment        Mixed Use              Employment Sites      (hectares)
                                   Land              Allocation             (hectares)
                                   Allocation        (hectares)

            Tyne and Wear          475               100                    240                   815

            Newcastle              20                10                     130                   160

        This table indicates that whilst over half of the land allocated as Prestige Employment land across
        Tyne and Wear is allocated within Newcastle, only just over 4% of general employment land across
        the sub-region is allocated within Newcastle.

        Although there is a general oversupply of employment land within the North East, there are
        indications that there is a potential shortfall of employment land in Tyne and Wear to 2021. As a
        result, policy justification states

        ‟This possible shortfall could be met in part through supply in Northumberland and County Durham,
        particularly in areas adjacent to the Tyne and Wear conurbation through their respective roles within
        the wider city region‟.

        It goes on to condition that in determining the land portfolio, assessments will be undertaken by local
        authorities. These will take into account the need to protect employment land and premises from
        redevelopment to alternative uses and the potential of existing employment allocations no longer
        required for employment purposes for reallocation to alternative uses or de-allocated.

Policy 19 – Prestige Employment Sites

        Within the North East region, seven Prestige Employment sites have been identified to provide a
        flexible response to attract regionally significant investment in emerging growth sectors and will
        facilitate innovative cluster development.

        Two of the seven Prestige Employment sites have been identified within Newcastle. These include:

              Newcastle Great Park – a location for digital based business, with a particular focus on
               innovation and entrepeneurship, technology transfer and financial and management support.

              Newburn Riverside - a 92 hectare site situated on the north bank of the River Tyne which has
               planning permission for offices and other general industrial and warehousing uses.

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         In making provision for these sites, high levels of public transport accessibility should be made with
         necessary improvements to the strategic and local road and rail networks secured.

Responses to the Draft RSS for the North East - Statements of the Tyne and Wear Authorities

         The Tyne and Wear Authorities (T&WAs) prepared a set of response papers during February 2006,
         which highlighted anomalies and queried a number of key policies and justifications within the Draft

         These papers, along with various other representations will be given key consideration during the
         Examination in Public (EiP) panel meeting to be held between March and April 2006.

         Three of the response papers are of direct relevance to this study. These include:

                  Matter 3/1 Tyne & Wear City Region;

                  Matter 4/2 Provision of Employment Land; and

                  Matter 4/5 Prestige and Reserve Employment Sites

         The principal issues outlined within these papers, which may have an influence upon future policies
         that relate specifically to the Tyne and Wear region and economic development and employment
         land, are analysed in more detail below.

Matter 3/1 Tyne & Wear City Region (Policy 6)

Issue 1 - Contradiction to PPG4

         According to the T&WAs, economic development proposals within the Draft RSS do not satisfactorily
         address the locational requirements of PPG4, particularly:

                  para. 10, concerning the need to allocate land so as to minimise trip lengths by employees
                   and encourage environmentally efficient modes of transport; and

                  para. 21 which seeks the re-use of previously developed employment land for economic
                   purposes, particularly high density employment uses e.g. offices.

         It is indicated in the Tyne and Wear Statement on 5/7 that the Tyne and Wear sub region, having a
         large amount of Previously Developed Land available, may be able to re-use some for economic
         development purposes in accord with PPG4, thus reducing any need for Tyne and Wear to rely on
         Greenfield sites in Durham and Northumberland.

Issue 2 - Locational Policies

         What the T&WAs object to is the dilution of the strategy through locational policies that dissipate the
         benefits employment and housing could bring to the heart of the City Region by allowing too much
         employment and housing elsewhere, with insufficient control. In effect, this questions the effect of
         criteria h) of Policy 6, which advocates economic development in areas of regeneration.

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         The paper states:

         „The aim of reducing net in-commuting to Tyne and Wear by reducing gross in-commuting could be
         met by:-

         a)         housing more of the higher-skilled people here (Tyne and Wear‟s policy aim) or

         b)         by re-locating high-skill jobs out of the sub-region to allow employees to be nearer their
                    place of work.

         However, it is considered that moving employment from a central location, highly accessible to a
         majority, to a peripheral location, makes this an untenable proposition. It puts few employees actually
         nearer their place of work and increases the distance many others would have to travel to access
         their place of employment. In addition it is suggested that it would also require the support workers to
         „reverse commute‟ out of Tyne and Wear to these new locations and use more greenfield land in
         providing for the relocation.

Matter 4/2 Provision of Employment Land (Policy 18)

Issue 1 - Spatial Allocation v Supply

         Employment land provision as set out in Policy 18 is based on employment land availability, once
         proposed de-allocations have been excluded. The paper maintains:

         „This does not fit with the locational strategy, as there will be a shortage of employment land
         available in Tyne and Wear, while surpluses will still be experienced in Durham and Northumberland,
         even after taking into account RSS Growth Assumptions‟.

         As outlined earlier in this document, the RSS proposes meeting this shortfall in Tyne and Wear by
         using land which is available in Northumberland and Durham. However, the T&WAs suggest that this
         threatens the core of RSS strategy, to regenerate the conurbations.

Issues 2 – Sustainability of Employment Land Allocations

         A further point is that whilst the T&WAs do not object to local employment needs being met in rural
         areas, a significant allocation of employment land in peripheral areas undermines the key
         sustainability principles of the RSS.

         Firstly it is stated that it contradicts the aims of increasing the provision of employment land in
         locations that are accessible to large areas of population, while minimising the need to travel, or in
         locations which are accessible by public transport.

         Secondly, there are strong objections to the substantial oversupply which would remain in these
         areas after de-allocations, as it would encourage a diversion of investment from the conurbations to
         the periphery of the sub-region, and this would run counter to the objective of concentrating
         development in the conurbations.

Issue 3 - Type of Employment Land

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         In Tyne and Wear the proportion of employment land on Brownfield sites is far higher than the rest of
         the region. For example, only 15% and 31% of the total employment land in Northumberland and
         Durham respectively is Brownfield, compared with a much higher proportion of 61% within Tyne and

Issue 4 - Reviewing Current Allocations

         The T&WAs wish to see employment land allocations which more broadly accord with projected
         demands for such land. They therefore require the RSS to take a far more strategic view of
         employment land requirements rather than reflecting the reality of existing allocations.

         They also suggest that the supply of these land allocations should be monitored closely to ensure
         that there are no adverse effects upon the Spatial Strategy. For example, there are concerns that an
         „undersupply of employment land in Tyne and Wear could put pressure on Prestige Employment
         Sites, such as Newcastle Great Park and Newburn Riverside‟.

         A more robust approach to the de-allocation and re-distribution of employment land allocations is
         requested along with consideration of a strategic phased approach to employment land release.

Matter 4/5 Prestige and Reserve Employment Sites (Policies 19 & 20)

Issue 1 - Application of the Sequential Test

         Whilst the T&WAs support the principle of the Sequential Approach, they believe that it has not been
         rigorously applied to policies 19 and 20. They state that this has resulted in:

         „potentially too much greenfield and edge of urban land being allowed to be brought forward for
         employment purposes outside the Tyne and Wear conurbation.

         This is likely to prejudice essential investment in the regeneration of the core of the region, where
         Government and other initiatives specifically address low demand, inner city living and realising new
         employment potential‟.

         Therefore, the RSS continues to provide for Tyne & Wear‟s economic needs from the periphery of
         the City Region and beyond.

         It is considered essential to increase the provision of economic activity land which is accessible by
         public transport and near residential locations in line with the sequential approach. Whilst the T&WAs
         suggest a re-examination of the majority of allocations in policies 19 and 20, it considers the sites
         within Tyne and Wear well located in relation to the policy.

Issue 2 – Clarification of Policy Criteria

         The T&WAs state that Policy 19 contains no clear indication to distinguish potential uses from those
         which may be acceptable on either General or Mixed Use sites. Therefore, consideration should be
         given to clarification of the nature of uses appropriate on Prestige and Reserve sites by inclusion of
         additional criteria.

         Whilst Policy 19 is subject to a range of criteria, be it insufficient, Policy 20 has no such criteria,
         which is considered by the T&WAs as an omission.

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        Although Policy 20 states that Reserve Sites should only be brought forward when there are no
        suitable opportunities at any other employment sites, the release mechanism set out is potentially
        complex in its operation.

        In addition, it is believed that some of the Prestige Sites may have potential for further phases to be
        brought forward in preference to Reserve Sites. This therefore needs to be factored into any release

        Examination in Public – Panel Report (August 2006).

        Role and Status of EIP Panel Report

        The First Secretary of State appointed an independent Panel to conduct an Examination in Public
        (EiP) into selected issues arising out of the Submission Draft RSS 1 as reviewed previously.

        Based on the objections and representations received, various matters for examination were
        selected by the Panel in consultation with the North East Assembly (NEA) and the Government
        Office for the North East (GONE).

        A number of specific matters discussed during the EiP panel which may direct the future scale and
        location of employment land suitable for office development across the North East, and more
        specifically, Newcastle include:

              Economic development, regeneration priorities & employment provision;
              Provision of employment land;
              Land allocations at airports;
              Brownfields Mixed-use developments; and
              Prestige and reserve employment sites.

        Consequently, the Panel Report has particular relevance to this study as it outlines various
        recommendations for changing the Draft RSS, which indicate that there may be a further need to
        modify or delete policies and / or text throughout the Strategy as necessary.

        PPS 11 „Regional Spatial Strategies‟ outlines the process for the adoption of RSS, indicating that the
        policy recommendations within the Panel Report are submitted to the Secretary of State who then
        publishes proposed changes to Draft RSS.

        Publication of the Secretary of State's proposed changes and reasoned statement, following the
        Panel's report, provides a further window for involvement. The Regulations provide for a consultation
        period of at least eight weeks from the date of publication. Following consideration of any
        representations made on the proposed changes, the RSS will then be published incorporating the
        Secretary of State's final changes together with a statement of reasons for any further changes

        Therefore, any proposed changes contained within the Panel Report strongly indicate the future
        policy direction of the RSS.

Key Recommendations

        The key recommendation made with regards to each of the five specific matters outlined above are
        detailed below.

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Economic Development, Regeneration Priorities & Employment Provision

        The Panel Report acknowledged that there were clear areas of mismatch and potential gaps in the
        market where the land and premises fall short of future demand requirements. In particular it
        highlighted that there is a recognised overall general oversupply of employment land (in all areas of
        the region except Newcastle, where there is perceived to be a shortage), yet a shortage of high
        quality office accommodation in the Region.

Provision of Employment Land

        It was suggested that future development is likely to take place on small scale sites, gravitating to the
        cores of the City Region, a scenario which supports the emphasis on urban regeneration
        opportunities, yet questions the role of the large edge-of-town Prestige Employment Sites.

        Although it was suggested that sites in Northumberland and Durham could potentially meet the
        potential shortfall in Tyne and Wear, given the circumstances outlined above, it was recommended
        that Policy 18 of the Draft RSS be modified to ensure that sites in the adjoining counties are not
        retained against this component of need.

        Consequently, the Panel recommended that Policy 18 be modified to include a requirement for the
        Tyne and Wear authorities, including Newcastle, to seek to meet the shortfall of employment land
        through intensification proposals around transport hubs and on Brownfield sites.

        Therefore, recommendation 5.2 states that Policy 18 should be modified so that the paragraph and
        criteria read:

        “In determining the land portfolio in accordance with the provision set out above, planning authorities
        should undertake sub-regional and local employment land assessments based on a 25 year level of
        supply and take up, taking into account:

        a)     the need to protect employment land and premises from redevelopment to alternative uses
               where they are an essential part of the long-term employment land and premises portfolio;
        b)     the potential of existing employment allocations no longer required for employment purposes for
               reallocation to alternative uses or de-allocation;
        c)     a presumption in favour of regenerating and upgrading existing employment land and premises
               in advance of allocating new sites on greenfield land;
        d)     the need to ensure that peripheral sites in the counties around the Tyne and Wear conurbation
               are de allocated, commensurate with the supply of sites within the urban core; and
        e)     the need for the Tyne and Wear authorities to seek to meet any shortfall of employment land
               supply through the intensification of sites around transport hubs and on previously developed
Regional Brownfield Mixed-Use Developments

        Due to the increased emphasis on Brownfield development, it was suggested that consideration
        should be given to changing Policy 13 to shift the scope of emphasis of the policy so that it is not tied
        solely to the promotion of sites listed and enable it to be used to give impetus to bringing forward
        other large mixed-use brownfield opportunities. It is also recommended that the „core areas of the
        city regions and the main towns should be the focus for major office functions‟ (pg 8).

        This would enable more sites in and around the edge of the core cities, including Newcastle, to be
        developed for potential office development. Within Newcastle, such sites would include the Discovery
        Quarter and Pilgrim Street.

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Prestige and Reserve Employment Sites

        Some of the Prestigious Employment Sites were initially designated in the response to attracting
        major high tech manufacturing plants. The prospect of such large sites turning their attention to the
        office market is a clear concern, as it would impact the viability of mixed –use brownfield land and
        cause the subdivision of a number of large sites.

        Therefore, it was concluded that a specific statement was required within RSS policy to deal with the
        B1 ambitions on employment land, particularly in the case of large Prestigious Employment Sites.

        A new Policy, 18A Office Development outside of City and Town Centres is recommended:

        „City and town centres will be the prime locations for office development (B1a) which is not ancillary
        to other commercial uses.
        Proposals for this form of office development will only be considered at other strategic employment
        land locations, including Prestige Employment Sites, if it can be shown that:-

        a)         they cannot be accommodated in a city or town centre, or in a regional brownfield mixed-
                   use development.
        b)         and any such proposal will not put at risk the strategy set out in any approved Local
                   Development Document for a city or town centre, or Master Plan for a major brownfield
                   mixed-use development‟.

        Within Newcastle, Prestigious Employment Sites include Newcastle Great Park and Newburn
        Riverside. Further office developments here would have to demonstrate why they couldn‟t be located
        in other brownfield sites

        Overall, these policy recommendations suggest that Tyne and Wear should meet the shortfall of
        employment land through the intensification proposals around transport hubs and on brownfield sites.
        Although not restricting office development on Prestigious Employment sites, they aim to direct this
        type of development to urban and edge-of-town locations, which for Newcastle, would mean areas
        such as the Discovery Quarter and Pilgrim Street.

Local Policy

        Local planning policy documents aim to set out the principles within national policies at a more
        localised context.

        There are three key local planning documents that are of relevance to this study. These include:

                  Newcastle Unitary Development Plan (UDP) (1998)

                  The Emerging Local Development Framework (LDF) Issues Report;

                  The Emerging Local Development Framework (LDF) Core Strategy Preferred Options
                   Report; and

        The key policy facets and issues within each of these documents are identified and analysed below,
        examining the spatial implications and quantitative impacts they have upon the supply of office
        development land.

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Newcastle City Council UDP

Role and Status

        The UDP was formally adopted by the Council in 1998 and runs until the end of 2006. Although it is
        coming to the end of its plan period, it is still of relevance and will hold precedence until any
        subsequent document is adopted for development control purposes.

Key Policies

        Economic development and employment have a high priority within the UDP, which is reflected in the
        policies and proposals to encourage economic revitalisation, investment and expansion.

        The economic development aims of the UDP are threefold:

            to provide sufficient land that offers a choice of size, location and quality – as promoted
               through Policy ED1;

            To develop the city centre by providing more high quality office floorspace to cater for the
               continued growth – as endorsed through Policy ED2.; and

            To retain and regenerate existing industry and business areas.

        Policy ED1 details numerous sites across the city that have been identified for economic
        development. Office developments along with other „general uses‟ are permitted on eight out of ten
        of these sites, with two of these sites allocated specifically for business B1 uses.

        In addition a number of sites previously allocated for business uses, as identified in Policy ED2, are
        safeguarded for business and industrial uses.

        Figure 1 below outlines these sites in more detail. A general commentary on each site has been
        provided to give a general overview of the site and to provide an update on the status of the site
        since its initial allocation.

 General uses include offices, high technology industry, 5.2 research and development (Uses B1 under the
Use Classes Order 1987) and appropriate high quality, high technology uses with clear industrial processes
within Class B2).

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         Fig 1

Site                              UDP Allocation        Size (ha)   Comments

Northern Development Area         General               80.0        This site has been partially
                                                                    developed. It is made up of three
(This site has now been renamed                                     cells, cells A, B and C.
as Newcastle Great Park)
                                                                    Cell A is the only cell where no
                                                                    development activity has occurred
                                                                    as it has been allocated as a long-
                                                                    term development site. The majority
                                                                    of the land within cell B has been
                                                                    developed for office accommodation
                                                                    by Sage Software, and cell C
                                                                    currently has planning permission
                                                                    for a small office development. Total
                                                                    development on the site to date
                                                                    stands at approximately 10 ha.
                                                                    Therefore the remaining capacity is
                                                                    70 ha.

Collingwood Clinic                Business (Class       5.4         Planning permission has been
                                  B1)                               grated on this site to Northern Rock
                                                                    for a 10 storey office development.
                                                                    Work commenced on site in
                                                                    September 2005

St Silias, Shields Road           Business (Class       1.0         Due to its district centre location,
                                  B1)                               the site has been developed for
                                                                    leisure and retail uses
                                                                    predominantly by Gala Bingo and
                                                                    other fast food outlets and shop

                                                                    Therefore this potential site for
                                                                    office development has been lost

Newburn Haugh                     Business and          75.0        The site belongs to One North East.
                                  general Industry
(This site has now been renamed   (Classes B1, B2                   Part of this land has already been
as Newburn Riverside)             and B8)                           developed for office and light
                                                                    industry by UK Land Estates.

                                                                     It is expected that only 56,000 sqm
                                                                    of the remaining land will be
                                                                    allocated specifically for office
                                                                    development, with the remaining
                                                                    62+ ha for general industrial uses.

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Site                                      UDP Allocation         Size (ha)    Comments

Walker Riverside Industrial Estate        Business and           7.9          This site does not particularly lend
                                          general Industry                    itself to office accommodation as it
                                          (Classes B1, B2                     is a disused ship yard. It has
                                          and B8)                             therefore been regenerated for off-
                                                                              shore industrial and engineering
                                                                              factory units.

Sandhills                                 Business and           2.7          This site has now been developed
                                          general Industry                    for semi-industrial and office uses
                                          (Classes B1, B2                     by the City Council parks and open
                                          and B8)                             space ranger services.

Heaton Junction                           Business and           5.2          This site has now been allocated for
                                          general Industry                    housing. Planning permission has
                                          (Classes B1, B2                     been granted for family housing and
                                          and B8)                             flatted accommodation, which is
                                                                              currently under construction.

Fowberry Road, Scotswood                  Business and           0.5          This site remains undeveloped and
                                          general Industry                    is still available. It is owned by the
                                          (Classes B1, B2                     council, but it has been stated that
                                          and B8)                             its likely use will be for workshop
                                                                              accommodation rather than office

            Source: Newcastle UDP(1998) and update from Newcastle City Council (2006)

            In total, 177.7 ha of land across Newcastle has been allocated for employment uses, which could
            potentially accommodate office development. This is made up of two very large sites of between 75
            and 80 hectares and six smaller sites between 0.5 and 7.9 hectares that have identified for potential
            office use.

            This illustrates that the UDP clearly attempts to recognise and cater for economic development
            through providing a variety of sites that are appropriate for business development and office space.

            However, as these sites were identified and allocated over 8 years ago, when the UDP was first
            adopted, many of these sites have now been developed or are inadequate for the demands of the
            current business requirements.

            From the 177.7 ha of land allocated, approximately 20 ha has already been developed for office
            accommodation and nearly 80 ha has either been lost to housing and industrial developments or has
            been re-assessed as inadequate for office uses. Therefore, from the total land allocated within the
            UDP for potential office uses, approximately 77 ha of land remains. Most of this land is within one out
            of centre site, the Northern Development Area (now known as Newcastle Great Park).

            It is therefore key that the emerging Local Development Framework recognises and caters for the
            current and varied demands and needs of businesses.

Newcastle City Council LDF – Key Issues Report (April 2004)

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Role and Status

        The Council is currently developing its LDF which, when adopted, will eventually replace the UDP as
        the City‟s official development plan strategy until 2016.

        The first step in preparing the LDF is to identify key issues that arise from the UDP and changes in
        local circumstances since it was adopted and important changes in planning policy at the regional
        and national level.

        This Issues Report outlines the key topic areas and questions that the city is currently facing in order
        to stimulate a formative debate and to outline the direction in which future local planning policy may
        be heading. It therefore provides an indicative vision of potential policy changes that will have an
        impact upon the local economy and supply and allocation of employment land across the City.

Key Policy Issues

        The key aims of the Newcastle Plan include:

                   Establishing Newcastle as the e-city of the North by increasing the number of companies
                    utilising new technology and intellectual property, whilst encouraging the growth of
                    knowledge based industries.

                   Facilitate the supply of suitable sites and premises to meet the needs and aspirations of
                    businesses seeking to set up, locate and grow in the city.

                   Increase the number of start up businesses across the City, focusing on growth sectors.

        It states that policies and proposals should encourage formation of clusters of modern businesses
        through providing a wide range and distribution of employment sites. A number of strategic sites all
        bring new opportunities to the city. These include:

                   The City Centre;

                   Newcastle Great Park;

                   Newburn Riverside;

                   Ouseburn Valley; and

                   Shields Road/Fossway.

        A general overview of the current issues within the local economy that are detailed in this report
        suggests an air of confidence; „Newcastle‟s supply of quality land and premises for business has
        reached a new high, giving capacity to create thousands of jobs in modern businesses‟.

        However, some of the key challenges the city now faces is the need to reduce over-supply of lesser
        quality employment land, whilst ensuring that affordable and accessible accommodation is retained
        in order to promote the growth of small and medium businesses (Key issues LE1 and LE2). The

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        Council‟s Economic Development Land Study produced in 2000 identified that modernisation of
        some sites is also required.

        The report outlines a number of options to address the affordability of business accommodation,

                   Cross-subsidy of affordable accommodation through flexibility on higher value land uses;

                   Grant funding to assist development of premises; and

                   Retention of visually unattractive affordable property for business uses.

                   Promoting business accommodation with regeneration projects, with a requirement for a
                    defined proportion of total floorspace to be affordable.

        In relation to the latter of these options, policy ED2.2 in the UDP designated mixed use development
        sites within the City Centre, which have since been completed or are continuing to be developed,
        adding to the vitality of the City Centre. The report suggests that these could be extended to other
        areas outside the City Centre, such as Ouseburn and area regeneration schemes in West and East

Newcastle City Council LDF – Core Strategy Preferred Options Report (May 2006)

Role and Status

        Following the feedback from the Key Issues report presented above, Newcastle Council has
        produced a set of preferred policy options which will be consulted upon before being taken forward to
        the final submission LDF document.

        The options within this document therefore provide a clear indication of the planning policies likely to
        form part of the Core Strategy within the imminent LDF.

Key Policy Issues

        The Strategy seeks to ensure that there is an adequate supply of accommodation to meet the needs
        of businesses wishing to grow or locate in the city. It firstly analyses the general employment land
        availability and then looks more specifically at land for office development.

        As a consequence of the Regional Employment Land Assessment and Draft RSS, which suggested
        that Tyne and Wear does not have a surplus of land, existing employment land provision within the
        City is to be broadly maintained.

        However, draft RSS requires that Newcastle secure a supply of 160ha of land, whilst the first LDF
        Annual Monitoring Report showed that the city‟s current supply, as allocated in the UDP, stands at
        230ha. There is also a loose fit between draft RSS and UDP allocations in terms of the location and
        type of land available.

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        The preferred option for dealing with this surplus of general employment land in the past had been to
        allow schemes to be brought forward on individual sites for alternative uses. However, in accordance
        with draft RSS, a citywide assessment of the supply of land and premises will be undertaken to
        consider the effects of over provision and the potential de-allocation or reallocation of sites for
        alternative uses. The importance of the City Centre and adjacent areas as locations for knowledge
        based small and medium enterprises will be an essential consideration in this process.

        The strategy makes specific regard to land for office development. It states that the LDF Annual
        Monitoring Report identified a large office capacity within Newcastle, of at least 500,000m2
        floorspace, with 50% in the City Centre. As the City Centre is highly accessible by public and other
        forms of transport, and has significant land capacity for office growth it is the preferred option as the
        primary focus for office development.

        The strategy identifies areas of significant potential office development both within and outside the
        City Centre. It includes those which have been identified in Draft RSS, the UDP and those with
        current planning permission.

        Within the City Centre, draft RSS identifies the Discovery Quarter as a Regional Brownfield Mixed
        Use Development Site. The 2005 Annual Monitoring Report confirms that there are some 21 ha of
        land and premises currently identified as suitable for offices, and further potential emerging as part of
        a mix of uses at Pilgrim Street East.

        Half the office capacity lies outside the City Centre, in accordance with existing UDP allocations,
        RSS policies and current planning permissions. As stated earlier, Draft RSS identifies Newcastle
        Great Park and Newburn Riverside Prestige employment sites. Although the latter of these sites is
        not considered to be a regionally significant location for office development, it currently has planning
        permission for office uses.

        Furthermore, the Airport has submitted an application for a small office park development on part of
        the allocated area that has been proposed for non-airport related uses.

        As a result of these issues, preferred policy option LE1 states that the general supply of employment
        land would primarily be provided through RSS Prestige Sites at Newcastle Great Park and Newburn
        Riverside; employment protection areas and mixed-use areas in the City Centre.

        With regard to office development, Policy LE1 states that

               „Office development should be located primarily on brownfield land within and adjoining the City
               Centre, and in the Ouseburn Regeneration Area as part of mixed use schemes of appropriate
               local scale. Other locations which have a high level of accessibility include:

                  Newcastle Great Park;

                  Areas with committed or established office use in the UDP, including employment protection
                   areas; and

                  Newcastle Airport.

        Therefore, there is an apparent steer towards office development within and adjacent to the City
        Centre, either through specific B1 applications or as part of other mixed use developments. Although
        land has been allocated for office development on the outskirts of the City Centre, on sites already
        allocated within the UDP or RSS, there are attempts to prevent further unscheduled office
        developments through a step change in the current policy. Rather than allowing ad hoc
        developments on surplus employment land, an assessment of the effects of re-provision will be

                                                      - 32 -
October 2006
                                                                        NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

        Ouseburn Development Strategy

        Office development in the Ouseburn Valley is supported by a strong policy framework……..

        To be completed

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                                                                             NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY



         From the second half of the 1990s, the UK economy has been in a low-inflation, low-interest rate
         environment, a situation that has been helped by the change to independent interest rate setting by
         the Bank of England. The economic growth cycle is also now much flatter than it has been in the
         past. We expect this situation to continue into the foreseeable future.

         This is demonstrated by the current economic cycle, with GDP growth expected to be around 2.2%
         this year, up from 1.8% in 2005, and forecast to return to trend growth of about 2.7% pa by 2008.
         Thereafter, we do not expect growth to vary noticeably from its trend rate.

         The outlook for employment is also for relatively subdued growth, particularly when compared with
         growth rates over the last decade. Experian Business Strategies (EBS) figures show that total UK
         employment growth was 1.1% pa from 1995 to 2005, whilst the forecast is for growth of only 0.4% pa
         over the next 15 years. UK employment growth is bound to be constrained going forward, as
         unemployment is historically low, and there is therefore a limited pool of available labour (although
         this constraint has been partially offset by inward migration). This will affect overall demand for
         commercial property, and office property in particular, where the link between employment growth
         and space utilised is most apparent.

North East Economic Overview

The North East has historically been among the weaker-performing regions of the UK, having experienced
slow output and employment growth and high unemployment rates compared with the UK average. The
region‟s working age population represents 4.3% of the total UK workforce and contributes 3.8% to total UK

         Like much of the UK economy, the region has undergone a considerable amount of structural
         adjustment. However, the North East‟s reliance on manufacturing has been significantly greater than
         the rest of the UK, and as a result, the structural change has had a proportionally greater impact on
         the region. In contrast to this, Newcastle has for many years been somewhat more dependent on the
         service sector, most notably the Finance & Business Services (F&BS) sector.

         Newcastle upon Tyne is the economic and commercial hub of the North East. With a total population
         of 269,500, Newcastle upon Tyne is the second largest local authority district in the North East (with
         Sunderland being the largest). Representing 11.1% of the region‟s working age population,
         Newcastle upon Tyne contributes 15.5% of the region‟s total output.

Economic Structure

Manufacturing output currently accounts for less than 10% of Newcastle‟s total economic output, having fallen
at an annual average of 1.0% pa since 1982. In comparison, the UK has had modest manufacturing growth of
1.3% pa since 1982, although its contribution to overall output has fallen from 20.8% in 1982 to the current
level of 15%. The structural change has particularly impacted the North East region where manufacturing
output has increased by only 0.5% pa since 1982. However, since 1990 manufacturing output has fallen at an
annual rate of 0.6%, contributing 19.75% of total output in 2005 from 28% in 1990.

Strong growth in the services sector, buoyed on the rapidly expanding F&BS sector, has provided the impetus
for UK economic growth. Since 1982 F&BS growth, at 5% pa, has outstripped service sector output, which
has increased at 3.4% pa, and is the largest contributor to UK service output, making up 25.1% of total
economic output in 2005. Service sector output contributed 72.1% to total UK output. Accounting for 84.4% of
Newcastle‟s output in 2005, the performance of the service sector has also aided Newcastle‟s growth, albeit to
a lesser extent than the UK, with growth again underpinned by the F&BS sector.

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October 2006
                                                                             NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

Service sector output in Newcastle has grown by 1.3% pa since 1982. This slower services growth can be
partly explained by Newcastle already having a significant service sector presence in 1982 (see graph).
The North East has failed to keep pace with the rest of the UK‟s restructuring; service sector output has grown
below that of the UK average, increasing by 2.6% pa since 1982, and currently accounts for 65.2% of the
region‟s total output, up from 56.1% in 1982.

                                       Service Sector Contributions
                                        Source: GVA Grimley, EBS



       Se      70%
       ce      60%
       GV      50%
       tot     30%



                                        Newcastle          North East       UK

With the combination of the decelerating manufacturing sector and a subdued service sector compared to the
UK average, it is no surprise to see total Newcastle output growth being considerably weaker than the UK
average. Since 1982, total Newcastle output has increased by 1.3% pa, compared with annual average
growth of 2.7% in the UK as a whole. Strong service sector growth has helped the North East region to
perform marginally better than Newcastle although average annual growth of 2.0% pa remains well below the
rate for the UK. These trends are summarised in the following table.

Historical economic trends

                      Average        Service sector      Average Service     Manufacturing      Average
                      GVA growth     output as a %       sector    growth    output as a % of   manufacturing
                      1982-2005      of total output     1982-2005           total output       growth
                      (% pa)         (2005)              (% pa)              (2005)             1982-2005 (%
UK                2.7                72.1                3.4                 15.0               1.3
North East        2.0                65.2                2.6                 19.8               0.5
Tyne and Wear     1.7                70.0                2.3                 17.4               -0.1
Newcastle LAD     1.3                84.4                2.0                 9.6                -1.0
Source: EBS, GVA Grimley

Unemployment and employment

Tyne & Wear has traditionally suffered from high levels of unemployment, and as of March 2006 had a
claimant count unemployment rate of 3.5%, above the UK average of 2.7%, although broadly in line with the
average for the North East region of 3.3%.

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                                                                   OFFICE MARKET STUDY

Most Local Authority Districts within Tyne & Wear have similar rates of claimant count unemployment, ranging
from 3.2 to 3.4% of the working age population, with the exception of South Tyneside, where the rate is a
much higher 4.8% (Labour Market Trends, May 2006).

It is interesting to compare the figures for Tyne & Wear with those in other areas of the UK, where labour
scarcity is a more considerable problem. For example, the South East region has a claimant count
unemployment rate of only 1.8%, and in some parts of the South East, rates are considerably lower.

Economic inactivity rates in Tyne & Wear are also above the UK average. The latest ONS figures suggest that
28.1% of the working-age population is economically inactive in Newcastle LAD, compared with the UK
average of 22%. In Gateshead, the figure is 23.6%, whilst the figures for North and South Tyneside are 21.6%
and 28.7% respectively. As with unemployment, some parts of the UK have much lower economic inactivity
rates. In the South East, for example, the rate is 18%.

Employment Structure

With the combination of falling manufacturing employment and below UK average growth in the service sector
employment since 1982, Newcastle‟s overall employment growth has been less than the UK at 0.1% pa
compared to 0.7% pa for the UK as a whole. The North East also has experienced employment growth lower
than that of the UK average, with employment in manufacturing growing at 0.2% pa.

Employment trends reflect those of output. Manufacturing employment amounts to just 5.7% of total
employment in Newcastle compared to the UK average of 12.0% and 13.6% in the North East. This follows a
fall in manufacturing employment of 3.5% pa in Newcastle, 2.4% pa in the UK as a whole and 2.6% pa in the
North East since 1982.

The service sector is the principal employer in Newcastle with 89.5% of total employment in the sector, up
slightly from 77.8% in 1982, having grown at 0.8% pa. Newcastle upon Tyne‟s growth in service sector
employment has lagged behind the UK (1.6% pa) and North East (1.3% pa) since 1982, however this is
largely a result of the already service orientated employment structure in the city (see graph below).

                                                Employment structure
                                               Source: EBS, GVA Grimley

               UK Employment Structure                                      North East Employment Structure

          6%         12%
                                                                             7%            14%

                             20%     Manufacturing                                                15% Manufacturing

                                     FBS                                                               FBS
                                     Other Services                                                    Other Services
                                     Other                                                             Other

   62%                                                               64%

                                           Newcastle Employment Structure

                                                 5%    6%

                                                                           Other Services


                                                            - 36 -
October 2006
                                                                            NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

Key to the growth of the F&BS sector in Newcastle upon Tyne is its skilled workforce. It outperforms the
regional and national average with regards to the proportion of the labour force possessing the highest
qualifications. 27.9% are educated to at least NVQ level 4, compared to the regional average of 20.7% and
the Great Britain average of 25.2%. However, both Newcastle and the North East region have a higher
proportion of the working age population who have no qualifications with 18% of the working age population
having no qualifications compared with the Great Britain average of 15.1%.

Newcastle Local Authority District also has an attractive demographic profile in that it has a population which
is skewed towards younger workers, 20.1% of Newcastle upon Tyne‟s population are aged between 18 and
29 years old. This is significantly higher than the corresponding figures for Tyne & Wear as a whole, the North
East and the UK as a whole. A pool of a young educated workforce is particularly attractive to service sector
employers. These figures are summarised in the following table:

Population by age band
Age Band (%)       0-17                    18-29                30-64                 65+
Newcastle upon 21.1%                       20.1%                42.8%                 15.9%
All Tyne & Wear    22.0%                   15.6%                45.7%                 16.7%
All North East     22.4%                   14.4%                46.7%                 16.6%
England & Wales    22.7%                   15.0%                46.4%                 16.0%
Source: 2001 Census

The 2001 Census provides data on employment by occupational group. The following table shows a summary
at Local Authority District level for Newcastle, Tyne & Wear, and also provides a comparison with England &

Employment by occupational group
Employment (% of total)          Wider Newcastle market          Tyne & Wear             England & Wales
                                 (Gateshead, Newcastle,
                                 North Tyneside)
Managers and senior              30,199 (11.4%)                  47,899 (11.0%)          3,570,069 (15.1%)
Professional occupations         29,609 (11.2%)                  42,736 (9.8%)           2,639,365 (11.2%)
Associate professional and       34,400 (13.0%)                  54,632 (12.5%)          3,256,877 (13.8%)
technical occupations
Administrative and               37,602 (14.2%)                  60,691(13.9%)           3,148,893 (13.3%)
secretarial occupations
Skilled trades occupations       29,053 (11.0%)                  51,460 (11.8%)          2,751,249 (11.6%)
Personal service                 19,149 (7.3%)                   31,777 (7.3%)           1,633,592 (6.9%)
Sales and customer               25,850 (9.8%)                   45,268 (10.4%)          1,812,500 (7.7%)
service occupations
Process; plant and               22,590 (8.6%)                   42,683 (9.8%)           2,010,090 (8.5%)
machine operatives
Elementary occupations           35,530 (13.5%)                  59,854 (13.8%)          2,805,119 (11.9%)
TOTAL                            263,982 (100%)                  437,000 (100%)          23,627,754 (100%)
Source: 2001 Census / GVA Grimley

Clearly, a lower proportion of the workforce in Newcastle and Tyne & Wear as a whole are employed in
managerial and professional positions (these two categories combines account for 20.8% of the workforce in
Tyne & Wear compared with 26.3% in England and Wales). However, in terms of administrative and
secretarial occupations, the proportion in Tyne & Wear is slightly above the average, at 13.9% in Tyne &
Wear, compared with 13.3% for England and Wales.

                                                     - 37 -
October 2006
                                                                             NEWCASTLE CITY COUNCIL
                                                                    OFFICE MARKET STUDY


 The outlook for total output growth through to 2020 is somewhat stronger than the preceding 15 years. Annual
 output growth in Newcastle is expected to average 1.7% pa, driven by the continued strong performance of
 the service sector, which is forecast to grow at a faster rate over the next 15 years. F&BS growth is expected
 to be a robust 3.2% pa, and will remain the main driver of economic growth in Newcastle upon Tyne, whilst
 the moderate upturn in manufacturing will also aid growth. It is this modest improvement in manufacturing that
 is expected to propel economic growth in the North East and the UK through to 2020 as, unlike Newcastle
 upon Tyne, both will see a slight slowdown in service sector growth over the period (see Graph).

                                       Output Growth Rates Forecasts
                                         Source: EBS, GVA Grimley




% 2.5
p.a. 2




                  Newcastle                        North East                           UK

         Services 1982-2005   Services 2005-2020   GVA 1982-2005     GVA 2005-2020

 Over the period 2005-2020 Newcastle upon Tyne LAD is expected to experience some labour market
 tightening, with manufacturing employment forecast to shrink further to account for only 4.2% of total
 employment by 2020, compared with an estimated 5.7% in 2005. In Tyne & Wear as a whole, the proportion
 of manufacturing employment is much larger, estimated at 11.3% of employment in 2005, a figure which is
 expected to reduce to around 9.7% by 2020, according to EBS forecasts.

 The rate of growth in all office-based services employment in Newcastle LAD over the next 15 years is
 expected to fall to 0.2% pa, compared with 1.1% pa since 1982. However, over the next ten years it is likely to
 be a higher 0.5% pa, with the rate of growth falling (and turning negative) towards the end of our forecast
 period to 2020. Tyne & Wear will see a further contraction in manufacturing employment to 2020, in line with
 tends in the North East and the UK as a whole.

                                                      - 38 -
 October 2006
                                                                                NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

Outlook for key economic indicators – output

                Average      GVA     Service sector       Average Service       Manufacturing       Average
                growth      2005-    output as a % of     sector    growth      output as a %       manufacturing
                2020                 total     output     2005-2020             of total output     growth     2005-
                (% pa)               (2020)               (% pa)                (2020)              2020 (% pa)
UK              2.7                  78.2                 3.2                   13.0                1.7

North East      2.1                  69.0                 2.5                   18.7                1.7

Tyne   and      2.2                  75.2                 2.6                   15.6                1.5
Newcastle       1.9                  91.5                 2.4                   7.6                 0.2

Source: EBS, GVA Grimley

Through to 2020, overall growth in Newcastle upon Tyne is set to improve on the preceding 15 years, spurred
on by the continued strong performance of the service sector, most notably in F&BS.

Looking at Newcastle upon Tyne‟s service sector in greater detail reveals where growth in office related
activities is forecast to occur. Business services, which is the largest subsector in Newcastle upon Tyne
contributing just under 17% to total output in 2005, is set to continue to drive the economy forward, growing at
4% pa until 2020. Falls in the presence of public administration and defence and other F&BS are more than
offset by the gains in the banking and insurance and other service sectors, resulting in overall office related
activities output growth of 2.5% pa through to 2020, outpacing that of the preceding 15 years.

The office related output growth is reflected in the forecasts for employment growth in Newcastle upon Tyne.
Whilst total employment growth through to 2020 is somewhat subdued, forecast to grow at 0.03% pa, annual
percentage employment growth in the office related sector is considerably greater at 0.4% pa. Again, the
business services subsector provides much of this growth, forecast at 0.8% pa, consolidating its position as
Newcastle‟s foremost office related employer, forecast to provide 18.1% of total employment in Newcastle by

Population growth

The following chart shows the population of Tyne & Wear from the early 1980s, and projects this forward to
2020, using ODPM projections. The historical trend shows a fall in the total population of 0.3% pa. The
projections show an expected easing off in the rate at which the population is declining, but still predict a fall in
the population of 0.1% pa, at a relatively steady rate throughout the period to 2020 (and beyond).

                                                        - 39 -
October 2006
                                                                                                                                    NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

                                                                 Population Trend - Tyne & Wear
                                                                      Source; EBS, ODPM























































A fall in population has clear implications for the growth in office employment, as any growth will need to come
from either an increase in the economic activity rate or a switch of employment from non-office based sectors
such as manufacturing.

For the wider Newcastle market (Newcastle, Gateshead and North Tyneside), the forecast is more positive,
with the population forecast to be broadly stable to 2020.

These figures are in line with the North East as a whole, which is forecast to see a small fall in population of –
0.1% pa to 2020 (using EBS forecasts). This contrasts with the UK as a whole, which is forecast to see a
marked rise in population of 0.4% pa, due mainly to growth in London, the South East, South West and East
of England (where the population is forecast to rise by around 0.6% pa to 2020).

Office Employment forecasts

We have used forecasts for employment growth provided by Experian Business Strategies (EBS) for
projections of employment growth in Newcastle LAD and the wider Newcastle market (Newcastle, Gateshead
and North Tyneside, which includes key out-of-town locations).

Our projections for office-based employment are based on total employment in the business sectors which we
believe are key for office demand. These are:

      Communications
      Banking and insurance
      Business services
      Other F&BS
      Public administration & defence
      Other services

The following table shows office stock, together with our estimates for office employment, based on 2004
data. We have taken the total office stock (based on net internal area), and assumed that 93% of this is
actually occupied (taking into account vacant and otherwise unused office space). We have then converted
this to a gross internal area figure (see table).

                                                                                          - 40 -
October 2006
                                                                               NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

We have estimated the number of employees in office-based sectors using the those employed in the
business sectors described above. We have then taken a 10% deduction to account for those who work from
home, or use desk-sharing or „hot-desking‟.

We estimate that the current office employment base is approximately 122,000 people in the wider Newcastle
office market (Newcastle, Gateshead and North Tyneside LADs). Of these, around 73,500 are employed
within Newcastle LAD itself.

Office space and employment summary
                                Newcastle LAD             Wider Newcastle
                                                          Market                    Tyne & Wear
All Office Stock (2004, '000    1,024                     1,461                     1,968
sq m, net)

Assumed Vacancy Rate            7%                        7%                        7%

Occupied Stock („000 sq m       952                       1,359                     1,830

Occupied Stock („000 sq m,      1,200                     1,700                     2,300
converted to gross)*

Total Employment                184,000                   358,500                   528,000

Employment – all                81,800                    135,000                   186,000
employment in office-based
Estimated Office                73,600                    121,600                   167,600
Employment from office-
based sectors**

Implied Office Density (sq m    16.9                      14.7                      14.4
per person)

Source: GVA Grimley / EBS

* The net figure has been multiplied up to a gross figure at a factor of 1.25.
** An adjustment of 10% has been made to reflect, desk sharing and those who work at home.

This results in a density of just under 17 sq m per person for Newcastle LAD. The Guidance note for
Employment Land Reviews (December 2004) published by the ODPM, builds on previous research by Arup
and DTZ, and cites a range of average densities, ranging from 13.8 sq m per person for call centres, to 16 sq
m per person for business parks, and 22 sq m per person for headquarters buildings (gross internal areas).
However, it should be noted that this refers to new space, and that densities for older space are likely to be
lower, due to less efficient design. The Newcastle figure is therefore within the range of densities cited by the
ODPM report. For the wider Newcastle area, the density is lower, although we would expect this to be the
case, due to the higher amount of business park space.

Forecasts for additional office space

Any future additional demand for office space will originate from the key office-based sectors. The EBS
forecasts for office-based employment suggest that there will be an overall growth in office-based employment
of around 0.3% pa over the period to 2020 in the wider Newcastle market. This is considerably lower than the
historical growth rate, which was 1.5% pa from 1982 to 2005. This mirrors to some extent the UK trend,
where office-based employment growth was 2.2% pa over the same period, and is forecast at a much lower
1% pa to 2020.

                                                      - 41 -
October 2006
                                                                             NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

This overall figure is broken down as follows:

Sector                               Estimated Office                   % growth pa, 2006 to 2020
                                     Employees, 2006
Communications                       5,000                              +2.6% pa
Banking and insurance                10,000                             +0.7% pa
Business services                    46,000                             +0.5% pa
Other F&BS                           8,600                              -2.0% pa
Public administration &              30,200                             -0.7% pa
Other services                       21,700                             +1.2% pa
All office-based sectors             121,600                            +0.3% pa
Source: EBS / GVA Grimley

Growth in the communications sub-sector is expected to be particularly strong, at 2.6% pa, although this is
currently the smallest of the office-based sectors. The banking and insurance and the business services
sectors are expected to see moderate growth (the latter being the most important sub-sector). However, the
„Other F&BS‟ and the sizeable „Public administration and defence‟ sub-sectors are forecast to see falls in

                      Office employment growth Forecasts - wider Newcastle Market
                                          Source: EBS / GVA Grimley



  % growth pa


























































The rate of office employment growth is not forecast to be constant throughout the period, but is expected to
reduce from relatively strong rates of over 1% pa over the next three years, to around 0.5% pa by 2010, and
indeed become negative towards the end of the period. The following chart illustrates this trend.

The decreasing growth rate is due to a number of factors, notably a declining population and an increasingly
limited pool of people from which to draw additional labour with the necessary skills.

Therefore, average growth rates over the next five-ten years are likely to be much stronger than over our
entire forecast period to 2020. Taking the period to 2015, the EBS forecasts for office-based employment
suggest that there will be an overall growth in office-based employment of around 0.6% pa in the wider
Newcastle market, much lower than the historical growth rate of 1.5% pa. Taking just Newcastle LAD the
forecast figure to 2015 is a slightly lower 0.5% pa.

                                                       - 42 -
October 2006
                                                                                NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

The figure of 0.6% pa is figure is broken down as follows:

Communications                      +3.6% pa
Banking and insurance               +1.1% pa
Business services                   +0.7% pa
Other F&BS                          -1.0% pa
Public administration & defence     -0.7% pa
Other services                      +1.6% pa
All office-based sectors            +0.6% pa

We also believe that a higher rate of increase could be achieved in Newcastle, if the city increases its
attractiveness to office-based employers, and if certain population and employment changes occur, which are
discussed later in this section. We have therefore calculated two alternative growth scenarios based on office
employment growth forecasts for other regional cities (Manchester and Leeds) and the UK as a whole.

EBS forecasts suggest that Leeds and Manchester should see similar rates of office employment growth of
0.8% pa and 0.9% pa (2006-2015) respectively (based on the West Yorkshire and Greater Manchester
areas), slightly above that forecast for Newcastle (0.6% pa).

Meanwhile, EBS forecasts for the UK suggest that employment growth in those sectors key to demand in the
office market will grow by around 1.2% pa over the period to 2015. The communications sector is expected to
see the fastest growth, at around 2.5% pa. The banking and insurance and the business services sectors
expected to see robust growth, at 1.7% pa and 1.3% pa respectively. The weakest sub-sector is public
administration and defence, which is forecast to see a fall of around 0.5% pa.

The following two tables show forecast growth in employment to 2015 in the wider Newcastle market and for
the Newcastle Local Authority District area. In order to make the conversion from office employees to
floorspace, we have used an average gross floorspace per worker ratio of 18 sq m per employee, as
recommended in the Guidance note for Employment Land Reviews (December 2004) published by the
ODPM. It should be stressed that these projections do not equate to take up but net additional office stock
(development less demolitions, conversions etc) required to accommodate the growing office based
Office employment scenarios, 2006 to 2015 – wider Newcastle market (Newcastle, Gateshead and
North Tyneside)
                                      Base Scenario            Manchester / Leeds     UK Growth Scenario
  Current Office-based                121,600                  121,600                121,600
  % increase per annum                0.6% pa                  0.85% pa               1.2% pa
  Additional Employees                735 pa                   1,000 pa               1,450 pa
  Additional Floorspace pa (gross     13,200 sq m pa           18,600 sq m pa         26,300 sq m pa
  Additional Floorspace -Total        120,000 sq m             167,500 sq m           236,000 sq m
  (gross internal)
 Source: GVA Grimley

Office employment scenarios, 2006 to 2015 – Newcastle LAD
                                      Base Scenario            Manchester / Leeds     UK Growth Scenario
  Current Office-based                73,700                   73,700                 73,700
  % increase per annum                0.5% pa                  0.85% pa               1.2% pa
  Additional Employees                360 pa                   625 pa                 885 pa
  Additional Floorspace pa (gross     6,400 sq m pa            11,300 sq m pa         15,900 sq m pa
  Additional Floorspace -Total        57,700 sq m              101,500 sq m           143,200 sq m
  (gross internal)
 Source: GVA Grimley

                                                      - 43 -
October 2006
                                                                             NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

From 2006 to 2015, our central forecasts suggest that it should be possible for Newcastle LAD to increase
office space by around 6,400 sq m pa (gross), and in the area covered by Newcastle, Gateshead and North
Tyneside LADs, this should be a higher 13,200 sq m pa.

From 2015 to 2020, EBS forecasts suggest that office employment growth will be marginally negative, at –
0.2% pa in both Newcastle LAD and the wider Newcastle market. This would mean that no additional
development would be required as a result of growth in employment.

Higher overall employment growth rates could be possible. However, we should emphasis that the
Manchester/Leeds and the UK scenarios are not the central forecast, but represents what could reasonably
be possible if Newcastle is successful in attracting a higher amount of employment in growing office-based
sectors than is currently forecast.

There are essentially four ways in which growth in office-based jobs could be accommodated. These are

   Population growth – A modest fall in the overall population in Tyne & Wear, and a broadly stable
    population in the wider Newcastle area is currently forecast. Therefore, any increase in office employment
    will need to be found from the existing population. However, it may be possible to reverse the downward
    trend in population, for example if Newcastle becomes a more attractive location in which to live and

   The transfer of workers from declining sectors. The manufacturing sector across Tyne & Wear is
    forecast to see a continued reduction in manufacturing jobs, at a rate of around 1% pa to 2020. In the
    wider Newcastle market (including Gateshead and North Tyneside), this is forecast to be a faster 1.5%
    pa. This relies on the ability of employees in sectors such as manufacturing to make the transition to
    office-based jobs, and has implications for education and training.

   Increased commuting from areas outside the Tyne & Wear area. For example, Durham, is the largest
    centre outside Tyne & Wear within reasonable commuting distance of Newcastle, and has a population
    approaching 90,000. The extent to which this can happen will depend on factors such as improving the
    quality of transport links and increasing the attractiveness of Newcastle as a location in which to work.

   Returning more people to the labour market who are not currently economically active is a key way
    in which the level of office employment could be increased. There are a number of ways in which this
    could be achieved, the key ones being to return those who are unemployed back to the labour market,
    and to increase the average age at which people retire.

The forecasts for the North East are based on Experian Business Strategies baseline view of growth
prospects for the UK economy, and are underpinned by a number of assumptions about what will happen in
the future. Assuming the North East employment rate increases to the national average by 2020 (to
approximately 86%) would give a different view on employment prospects in the region. This would result in
employment in the North East in the period to 2020 to be 129,000 higher than the baseline forecast.

If it is assumed that these additional jobs in the North East are located in local authorities in line with that
expected under the baseline forecast, employment in Newcastle upon Tyne would be approximately 21,000
higher than the baseline forecast in the period to 2020, and around 50,500 higher for the Newcastle,
Gateshead and North Tyneside area.

Again, adopting the structure of employment growth in the baseline forecasts, an estimate of which industries
these jobs would be created in can be obtained. Office based employment in Newcastle would be 8,850
higher in this higher employment rate scenario, and around 20,000 higher in the Newcastle, Gateshead and
North Tyneside conurbation in the period to 2020. This is a higher figure than the alternative higher growth
scenarios would require.

                                                     - 44 -
October 2006
                                                                            NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY


The overall demand for new office space will be a combination of additional demand from employment growth
and that from existing occupiers seeking to upgrade their current space (on lease expiry or break option).
These calculations represent only the additional space that could be required from additional demand
resulting from employment growth. The figures do not therefore equate to take-up but to net additions to the
office stock ie development less demolitions, conversions etc.

Our central forecast suggests an increase in office employment, and therefore of additional floorspace, of
0.6% pa in the wider Newcastle market to 2015, resulting in around 13,000 sq m pa of additional floorspace
(gross). In Newcastle LAD, the growth rate is forecast at 0.5% pa, resulting in an additional floorspace of
around 6,400 sq m pa. However, a slight reduction in demand thereafter results in a lower average growth
rate throughout our entire forecast period to 2020, with a small decline in office-based employment in the last
few years.

A faster growth rate could be possible over the period, however, based on expectations for the wider UK. This
will depend on Newcastle successfully attracting office employers, reducing the rate of population decline and
increasing the participation rate of the working age population.

                                                     - 45 -
October 2006
                                                                             NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

Market Commentary

Newcastle‟s position as the economic and administrative capital of the region enables it to dominate the office
market in the North East. According to NEPD, at the end of 2005, it accounted for more than a quarter of the
regions built office stock (ODPM figure), more than one third of the available floor space and 51% of the total
floor space take up in the North East.

The foundations were laid in the 1960‟s and 70‟s when Newcastle saw substantial institutional investment and
development. This development was founded on strong demand from public sector occupiers generated by
Government policy towards promoting decentralisation from the south east. In the light of recent
announcements by Government this trend may be repeated in future years.

The city boasts two of the strongest higher education establishments in the region in Newcastle and
Northumbria Universities. This reinforces the city‟s attraction to office occupiers turning out a graduate
workforce with an evident desire to stay within the region.

Whereas the office market remained relatively static during the early 1980‟s however occupier demand
increased in the latter part of the decade. Enterprise Zone status was granted to the site of the former
Armstrong works a riverside area east of the city as well as industrial areas within Newburn.

This is also coincided with the establishment of the Tyne and Wear Development Corporation (TWDC).

Capitalising on improving market conditions TWDC brought substantial public sector funding to bear to create
the city‟s first out of town office park, Newcastle Business Park. The scheme was a great success attracting
British Airways, AA, Merz McClellan now (PB Power) ICL, MAFF and IBM amongst others. The scheme is
now fully developed and mature providing over 50,000 sq m (538,200 sq ft) of accommodation.

TWDC went on to initiate Central Business and Technology Park (originally designed Newcastle Science
Park) in the early 1990‟s and then its major project East Quayside which is substantially complete.

Future city centre office development is being directed by the City Council toward St. James‟ Boulevard to the
west of the city centre and to the south of the Central Station. Schemes such as Citygate and St. James‟
Gate have been completed with a significant take up of the built office schemes.

Recognising that Newcastle is struggling to meet office occupier demands, neighbouring local authorities have
promoted business parks on the fringe of the city such as Watermark (Metro Centre), Balliol (Quorum), Cobalt
(North Tyneside), Gosforth Business Park and most recently Baltic Business Park (Gateshead). Other
proposed schemes such as Northumberland Business Park at Cramlington and North Seaton in Ashington will
also seek to compete for market take up within the Newcastle/North Tyneside Travel to Work Area.

Out of town office schemes in and around Newcastle itself are limited. At Newburn Riverside, mixed office
and industrial development is underway. Following the success with the initial phases of development having
experienced strong demand, developers are pressing to increase the office element of the scheme and
reduce industrial development. The importance of Public Sector office occupiers to the market is
demonstrated clearly at Newburn with bodies such as One NorthEast, DEFRA and NHS already occupying
space on the park.

At Newcastle Great Park, the first phase of 360,000 sq ft (33,445 sq m) was pre-let to Sage Plc who occupied
in late 2003. This is one of the largest private sector occupiers to be accommodated in the region over the
last 3 decades. Although it was hoped that this letting would act as a catalyst to further development, no other
office occupiers have been secured and no speculative development has been undertaken.

In the city centre opportunities for new office development are limited not only by the compact nature of the
central area (river to south, central motorway to east and Town Moor to the north) but also by the high
proportion of listed buildings primarily within the Grainger Town area of the city. This combined with strong
demand has led to an imbalance in the market with a shortage of new developments of Grade A
accommodation with large clear floor plates. These developments are generally substantially pre-let prior to

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October 2006
                                                                            NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

completion. The shortage of new floor space has led to a surge of refurbishment schemes. Larger buildings
dating from the 60‟s and 70‟s such as Cathedral Square, All Saints and Cale Cross House have been
successfully refurbished and have secured new tenants and rental growth.

The West of the City Centre offers the best prospect for growth. Recognising this, the “Discovery Quarter”
was the subject of a study commissioned by the City Council which examined the potential of a range of sites
in the area. The study included some sites where large scale redevelopment will take place for a range of
uses which undoubtedly will include office accommodation.

The Discovery Quarter takes in much of the land south of Central Station and westwards as far as Newcastle
Business Park. It then extends north along St James Boulevard to Gallowgate and St James Park. The area
has already seen successful developments such as Central Square, Citygate, St. James‟ Gate and the
International Centre for Life.

Development in the Discovery Quarter is constrained by accessibility, fragmented land ownership,
infrastructure issues and difficult ground conditions in some areas which could hamper the comprehensive
regeneration of much of the area.

St. James‟ Boulevard has in recent years been promoted by the City Council as the new office quarter, the
successor to the Quayside. It has accommodated significant development over the last 5 years. The area
has seen the construction of Citygate at the northern end of the Boulevard including some 13,935 sq m
(150,000 sq ft) of new build office development. At the southern end of the Boulevard is St. James‟ Gate
which has been occupied by Watson Burton and Baker Tilley - 5,574 sq m (60,000 sq ft). The second phase
of St. James‟ Gate includes 80,000 sq ft of offices over half of which has been recently let to the Big Lottery
Fund. A smaller letting has been secured on the ground floor to UBS (5,000 sq ft) while a total of 36,000 sq ft
remains available. There is approximately 23,000 sq ft available in the City Quadrant Scheme at
Westmoreland Road/St. James‟ Boulevard.

In the east of the City, East Quayside is almost complete and Ouseburn is becoming a more attractive
proposition for office development. The character of the area and its topography determine that office
development in Ouseburn is smaller in scale than is being undertaken to the west of the city.

There has been a significant amount of pre-letting or take up of schemes during the course of construction.
This is clearly the case at Citygate which was occupied by the Newcastle College of Further Education,
Scottish & Newcastle Breweries, Grainger Trust and Ernst Young. Subsequently the later phase at Citygate
was occupied by the Government Office for the North East who leased 70,000 sq ft (6,503 sq m) with the
balance of 20,000 sq ft (1,858 sq m) remaining available.

Headline office rents for prime accommodation in the City tend to increase in steps followed by a general
period of consolidation. The £20 per sq ft level has recently been reached on a significant amount of space at
St. James‟ Gate and at Central Square. New schemes are being appraised at this level.

It is clear from the profile of the local economy that office based employment is increasingly important to the
region. Consequently good quality office accommodation remains in demand and developers are keen to
respond although they are hampered by the shortage of available sites ready for development.

Whilst other centres in the UK are suffering from an over supply of older accommodation developed in the
1960‟s and 70‟s, this is not a characteristic of the Newcastle Office Market. This was probably attributed to
historically low rents in the city which restricted speculative development and slowed down the rate of private
sector investment in new office schemes.

In the traditional office core area, the high proportion of listed building is a significant constraint on new
development. Demolition even retaining facades is usually not an option, preventing the development of large
flexible floorplates required by modern occupiers.

However, development on Grey Street in the 1980‟s and 1990‟s brought forward some good quality space
such as Earl Grey House, Bank of Scotland and Lloyds Court where the façade was retained to front
essentially new build accommodation.

                                                     - 47 -
October 2006
                                                                                 NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

Other occupiers such as Dickinson Dees and Ward Hadaway, traditional city centre occupiers, chose new
large floor plates on Newcastle Quayside because of the lack of availability within the established city centre
office area. Had that accommodation been offered in the city centre, it is debatable whether those firms would
have moved out.

Despite its limitations Newcastle‟s dominance of the regional market is clear with over half of the regions built
stock located in the city. Headline rents are now around £20.00 per sq ft, the highest in the region. At this
level and with yields falling office development is both financially viable and profitable to developers. Office
accommodation at current rent levels is also attractive to footloose occupiers as, in comparison to other cities,
the costs of occupation are relatively low.

The development of Central Square and Central Square South was particularly significant (involving an initial
refurbishment scheme of a former post office building and more recently in the case of Central Square South
with a new state of the art building) substantially occupied by Eversheds but being a major statement in terms
of new office construction/flexibility and quality for the city. It also established the credibility of the area south
of Central Station, previously largely overlooked.

Despite an apparent gap in the market it is evident that few developers and owners were prepared to take the
risk of developing speculatively in the City and usually seek to secure pre-lets before commencing
construction, thereby minimising the risk. Take up of space by organisations such as Watson Burton,
Dickinson Dees, the Big Lottery Fund, Sintons and the Government Office for North East confirm that the
occupational requirements are ready to take up any high quality space provided within the city. Most recently
the pre-letting of 46,000 sq ft of space at Time Central, Gallowgate to Robert Muckle has ensured that the
developer Terrace Hill has secured a pre-letting of more than 50% of the 80,000 sq ft office scheme. Other
schemes are being proposed in the immediate area including Strawberry Place.

Where developers have been bold enough to build speculatively, lettings have usually been achieved either
prior to completion or immediately thereafter.

Surrounding areas, recognising the strength of Newcastle‟s Office Market and its perceived inability to satisfy
demand, have promoted office development around the fringe of the city. Baltic Business Park,
Balliol/Quorum, Gosforth Business Park, Cobalt Park, Northumberland Business Park are all examples which
seek to feed off the over spill or attract occupiers from the Newcastle market place.

Public Sector occupiers have historically played an important role in the City‟s office market. Indeed the DSS
office complex at Longbenton was the largest office complex in Europe. There have also been significant
office lettings at Newburn to the public sectors including One NorthEast, NHS and DEFRA. There have been
lettings at Quorum and Cobalt to Inland Revenue and to the Department of Works and Pensions.

The long awaited announcement by Government under the Lyons Report of further decentralisation of civil
servants from the south east has not proceeded at the pace originally anticipated due to union pressure and
delays in terms of implementing a strategy including the review of any further take up of space in London and
the south east.

Newcastle was ranked fourth in the UK survey by King Sturge who were analysing the suitability of areas
outside the south east for public sector relocation. It was the only city in the North East to be placed in the top
10 of the 102 towns and cities considered.

Available Office Accommodation

Using North East Property Data we have analysed office availability since 1996. Fig 3 below shows
availability in the City‟s office market over the 10 year period. During the period 2000-2002 there is an evident
dip in available supply. This followed an almost steady decline since 1996. From 2003 onwards, the supply
has come back strongly. The fall in the number of units set against a rise in floor space reflects an increase in
suites and buildings catering for larger occupiers.

At the end of 2005, NEPD recorded 164,000 sq. m. available in Newcastle, a high 18.5% of the built stock.

                                                        - 48 -
October 2006
                                                                            NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

Fig 3: Availability of offices accommodation in Newcastle by units and floorspace





                                                                                                      No. of Units

           100                                                                                        Total sq m (000's)
                                                                                                      % of Regional Total





                 1996   1997   1998   1999     2000          2001   2002   2003     2004     2005

Quality of Available Office Accommodation

NEPD requires its respondents to classify properties in terms of quality. A nil response will often indicate
poorer quality accommodation.

Fig. 4 shows how the quality of stock of available office properties in Newcastle has changed over the last 10
years. The stock of new build modern refurbished properties declined at the turn of the century but has now
recovered to the levels of the mid 1990s. An apparent decline in poorer quality accommodation may be
explained by an increase in refurbishment schemes.

                                                      - 49 -
October 2006
                                                                                        NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

Fig 4: Quality of Available Offices in Newcastle 1996-2006





  Amount (units)                                                                                      Nil Response
                    80                                                                                Other
                                                                                                      New Build/Modern Refurbishment




                         1996   1997   1998   1999   2000          2001   2002   2003   2004   2005

Availability by Size

In a healthy office market we would expect to see a range of property sizes with no apparent gaps in supply.

Fig 5 below shows an analysis of office availability in Newcastle by sizeband as recorded by NEPD. As we
would expect, the greatest number of properties fall in to the smaller sizebands (It should be noted again that
properties under 150 sq m are not recorded by NEPD). The number of properties in the 1000-2000+ sq m is,
perhaps surprisingly, higher than in the mid range sizebands.

Looking at the data over a 10 year period there is a marked decline in smaller and mid range properties
matched by an increase in the number of large office properties. In our view this is evidence of the maturing
office market in the city and it‟s increasing importance as an office location. New development has tended to
focus on larger occupiers and accommodation.

                                                             - 50 -
October 2006
                                                                                  NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

Fig 5: Office Availability in Newcastle by size 1996-2006
                                                Availability by Sizeband




           60                                                                                                     1997

           40                                                                                                     2002
           30                                                                                                     2004



                150+   300+    400+      500+       600+         700+      800+      900+   1000+     2000+

                                                   Size in Square metres


The number of units and amount of floorspace leaving the market each year is the most commonly used
measure of the state market. There are however a number of health warnings which need to be borne in
mind. Firstly, take-up includes properties removed from the market for a range of reasons including
demolition. Secondly, take-up is constrained by available supply, ie only if there is a supply of
accommodation matching occupiers needs will take up occur. Finally, in using NEPD data, units of under 150
sq m are not recorded. In a City Centre like Newcastle there will be a constant churn of units in this smallest
size category. The resultant figures can therefore be considered to me marginally lower than the actual

Fig 7 shows take-up of offices in terms of units and floorspace in the City between 1996 and 2006.
Contrasting the beginning and end of that period, the number of units has fallen while the amount of
floorspace being taken up has broadly doubled. This is evidence again of the increasing average size of units
and the maturing of the office market in Newcastle

                                                     - 51 -
October 2006
                                                                                          NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

Fig 7 Take up of Offices in Newcastle 1996-2006




                                                                                                         Total Annual Units
                                                                                                         Total Annual Floorspace (000's sq m)



                1996    1997   1998   1999   2000          2001       2002      2003     2004    2005

Fig 8 shows the figures behind the take-up of floorspace in Newcastle grouped in Fig 7. This has allowed us
to calculate an average take up in the City of 47,010 sq m per annum. Adjusting this to account for units of
under 150 sq m, we estimate take-up to be around 50,000 sq m per annum.

Fig 8: Annual Office Take up in Newcastle upon Tyne (000 sq m)

Yr            1996     1997    1998   1999    2000           2001        2002          2003     2004    2005          10    yr

000s          37.8     41.4    56.3   35.0    42.0           62.2        26.0          26.8     76.5    66.1          47.01
Source: NEPD

                                                             - 52 -
October 2006
                                                                                 NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY


Supply of Office Property in Newcastle

In order to consider the suitability and adequacy of the supply of office accommodation in the Newcastle City
Council area, we have built a database of all available office properties as at 31 July 2006.

The market can be segmented in a number of different ways to reflect characteristics which determine the
suitability of a given property to a prospective occupier.

In our opinion the most significant of these criteria are quality, rent, location, size, age, tenure and parking.

Where appropriate, we have undertaken our analysis both by the number of properties and the amount of floor
space which falls into a given category.


The market requires a range of sizes to satisfy differing requirements from SME‟s to headquarters facilities.
We have looked at the supply of properties falling into the following size ranges:-

         Under 500 sq ft:                                  Likely to accommodate SME‟s.
         500-2500 sq ft:                                   Includes move on accommodation and satellite offices.
         2501-5000 sq ft:                                  Includes small office suites and small buildings
         5001-10,000 sq ft:                                Medium size suites and small buildings
         10,001-30,000 sq ft:                              Medium to large accommodation
         30,001-50,000 sq ft:                              Large accommodation
         50,001 + sq ft:                                   Buildings

It should be noted that our database was built using agents registers and that properties falling into the
smallest category may not be openly marketed, let directly by landlords or form part of a business centre or
managed workspace. Nevertheless, our investigation suggested very high occupancy levels and low
availability in such buildings/complexes.

The following graphs show the composition of the available supply firstly by reference to the number of
properties falling into each of the above categories and then by quantity of floorspace.

                     Size                                                           Size
               No of properties                                                By Floorspace

                    2%                                                           7% 0%

                                          Under 500 sq ft
                                          500 -2500 sq ft
                                          2501-5000 sq ft
20%                               43%     5001-10,000 sq ft
                                          10,001-30000 sq ft
                                          30,001-50,000 sq ft
                                          50,001 + sq ft               32%


                                                         - 53 -
October 2006
                                                                                 NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

Having considered the above information we would comment as follows:

         Only 2% of the properties representing under 1% of available supply fell into the smallest size

         From 500 sq ft -2,500 sq ft represents the largest number of properties in any category with 43% of
          the available supply. In terms of floor space this represents 14% of the supply on the market.

         41% of available properties are between 2,501 and 10,000 sq ft representing 37% of the available
          floor space.

         Only 14% of available properties are over 10,000 sq ft however they represent 49% of the available
          floor space.

         While properties in the two largest categories comprise only 1% each of properties on the market,
          they represent 17% of available floorspace

The overall picture presented by analysis of the available supply is of a maturing office market dominated by
increasingly larger properties while small properties are in short supply.


The classification of property in terms of quality is clearly subjective however, it is an essential criteria in order
to build up a picture of the health of the office market.

Our classification is as follows:-

          New-build Grade A:          Recent and new developments to a high specification.

          New-build:                  Recent and new development without air conditioning, raised floors.

          Refurbished:                Offices of varying ages which have been updated and improved to meet
                                      current requirements.

          Unrefurbished:              Dated accommodation in need of refurbishment.

          Historic (Listed):          Properties in Grey Street and Grainger Town.

New developments excludes schemes under construction.

New-build includes purpose built modern office buildings

We have included this last classification due to the high proportion of listed buildings in the City. Properties
within it may otherwise have fallen into two categories – refurbished or unrefurbished.

The following graphs show the composition of the available supply firstly by reference to the number of
properties falling into each of the above categories and then by quantity of floorspace.

                                                        - 54 -
October 2006
                                                                                  NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

                   Quality                                                             Quality
               No of properties                                                     By Floorspace

                8%        8%                                                            4%

                                     25%        New-build Grade A
                                                Historic (Listed)         38%


Having considered the above information we would comment as follows:

         Although Grade A floor space represents only 8% of properties available, it represents 25% of the
          available floor space. This reflects the fact that these properties are usually larger floor plates and
          aimed at larger occupiers.

         New build and refurbished properties are relatively consistent in proportion whether considered by
          number of properties or floor space.

         Unrefurbished and historic properties are greater in terms of number than floor space suggesting that
          they are in general smaller properties.

         39% of properties and 38% of floor space is classified as refurbished. The term „refurbished‟ is
          however highly subjective. As rents rise and yields fall, refurbishment becomes more attractive to
          owners. In order to compete with new build accommodation landlords are often forced to commit
          expenditure to refurbishment.

The above analysis reflects a market in which a large proportion of the available supply is good quality being
either recent or refurbished.


Classification by age will have a close correlation to quality. Our classification was as follows:-

          Pre 1990:         These are likely to be historic buildings, in most cases listed and located in
                            Grainger Town.

          1900 – 1959:      Offices built in the first part of the twentieth century.

          1960 – 1979:      A significant growth period in Newcastle‟s office market.

          1980 – 2000:      Modern buildings.

          Post 2000:        New buildings likely to meet the requirements of today‟s office occupier.

The following graphs show the composition of the available supply firstly by reference to the number of
properties falling in to each of the above categories and then by quantity of floorspace.

                                                        - 55 -
October 2006
                                                                                 NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

                      Age                                                                 Age
                No of properties                                                     By Floorspace

        28%                                                                                             9%

                                                       Pre 1900
                                                       1900 – 1959      42%
                                                       1960 – 1979
                                                       1980 – 2000
                                           18%         Post 2000


                          23%                                                                16%

Having considered the above information we would comment as follows:

        Distribution by number of properties is relatively even. Distribution by floor space however shows that
         the supply is dominated by accommodation constructed since 2000 (42%). This reflects the fact that
         recent development have been offering larger floor plates.

        While 19% of properties are pre 1900, they represent only 9% of the floor space. This classification
         is slightly wider than the historic (listed) classification used in the analysis by quality.

        While 18% of properties are classified as 1900 – 1959, they represent only 9% of the floor space.
         This is evidence that the market has moved towards larger properties in recent years.

        58% of the City‟s available office floorspace has been developed since 1980.

The overall picture is of a market which has developed significantly over the last 25 years.


Classifying properties by asking rent is far less subjective than quality. Nevertheless we would expect a
strong correlation between the two. It should also be noted that in analysing asking rents, no allowance has
been made for incentives such as rent free, capital contributions etc. In this way, headline rents can be
manipulated to produce higher figures. Properties offered by way of assignment may also distort the picture
slightly as rents will often be below market value having often been established some time ago.

Our classification is as follows:-

           £20 per sq ft and over:     This is the prime office rental level in Newcastle.

           £15 - £20 per sq ft:        This range covers Grade A space in business park locations and good
                                       quality refurbishments in city centre locations.

           £12.50 - £15 per sq ft:     This range will cover ageing and lower grade refurbishments.

           Under £12.50 per sq ft:     This will cover accommodation in need of refurbishment as well as difficult
           floor plates.

                                                        - 56 -
October 2006
                                                                                 NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

           For sale only (Classification used in floorspace graph only).

In undertaking our analysis we found very few properties for sale only. These were excluded from our
analysis by number of properties but only represented 2% of available floor space. It should also be noted that
a small number of properties are offered to let or for sale.

The following graphs show the composition of the available supply firstly by reference to the number of
properties falling into each of the above categories and then by quantity of floorspace

                     Rent                                                              Rent
               No of properties                                                   By Floorspace

                              14%                                                    2%

                                                                           22%                    23%

  38%                                           £20 per sq ft
                                                £15 -£20 sq ft
                                                £12.50 - £15 sq ft
                                        25%     Under £12.50sq ft


Having considered the above information we would comment as follows:

        38% of properties are available at under £12.50 per sq ft however they represent only 22% of the
         floor space. This suggests lower rents are achievable on smaller suites/buildings. Given the recent
         trend towards larger accommodation, that accommodation is also likely to be older/poorer quality.

        Only 14% of properties fell into the £20 per sq ft or over category yet they represent 23% of the
         available floor space.   This reflects higher grade and newer accommodation is in larger

        Mid range rents of £12.50 - £19.99 represent around half of the market by property or floor space.

        Only 2% of floorspace available is offered on a for sale basis only.

The analysis of rents reinforces the picture presented by analysis by age and quality with a significant
proportion of the available floorspace priced at over £15 per sq ft.


Location can be another subjective segmentation of the market. We have broken down supply into:-

         In town:                    Central business district.

         Edge of Centre:             Outside the Central business district but not business park locations.

         Out of town:                Outside the city centre, business parks in suburban locations.

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  The following graphs show the composition of the available supply firstly by reference to the number of
  properties falling in to each of the above categories and then by quantity of floorspace.

             Location                                                                 Location
          No of properties                                                          By Floorspace

                               29%                                                                       26%

42%                                                                       39%

                                                  In-town (CBD)

                         29%                                                                       35%

  Having considered the above information we would comment as follows:

           The analysis produces relatively consistent results by floor space or by number of properties. This
            may reflect an increasing number of smaller units being built outside the central business district with
            more generous car parking. These developments are aimed at smaller occupiers attracted by their
            „own front door‟ rather than small suites in a multi-let building.

           In town represents a surprisingly small proportion of the available floor space. The difficulties of
            developing in the Central Business District and increasing competition for sites and space from
            residential use will be important factors.

  A range of locations is offered with the 61% being in or around the City Centre. Out of town and business park
  locations are a significant proportion of the market.

  Car Parking

  Car parking is an important factor affecting business location. Pressure has been brought to bear through the
  planning system to reduce car parking levels and thereby reduce car journeys.

  We analysed available supply as follows:-

  4 spaces per 1000 sq ft:                       Generally the highest provision of parking found on older
                                                 business parks and out of town locations.

  3 spaces per 1000 sq ft:                       A high provisions of car parking found in newer business park

  2 spaces per 1000 sq ft:                       Likely to be accommodation in suburban locations.

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 1 space per 1000 sq ft:                        Likely to be accommodation in edge of centre locations.

 0.5 spaces per 1000 sq ft:                     Provision found in Central Business District locations.

 No car parking/none specified:                 Central Business District locations benefiting from good public
                                                parking and public transport provision.

                                                                                       By Floorspace
          No of properties
                           15%                                                                         20%

                                            4 spaces per 1000 sq ft
                                   12%      3 spaces per 1000 sq ft
                                            2 spaces per 1000sq ft                                              11%
                                            1 space per 1000sq ft
                                            0.5 spaces per 1000sq ft or less
                                            No car parking/none specified      20%
                       12%                                                                13%

 Having considered the above information we would comment as follows:

           35% of properties and 22% of floor space have no car parking or none specified in marketing
            literature. These can be expected to be smaller suites in central locations with good public transport
            and public parking nearby.

           40% of properties and 45% of floor space currently available has two or more car spaces per 1,000
            sq ft. This is most likely to be in out-of-town and suburban locations.

           13% of properties and 20% of floor space offers 0.5 car space per 1000 sq ft. These are likely to be
            made up of modern floor space in central locations aimed at larger occupiers.

 The above information suggests that the city provides a range of accommodation with differing car parking
 provision. Car parking in the Central Business District is clearly at a premium.


 In recent years we have seen increasing flexibility in the range of tenure offered in the office market. Long
 leases have given way to shorter leases reflecting the demands of occupiers. Over the last five years and
 fuelled by low interest rates, we have also seen increased demand from small to medium size occupiers to
 buy freeholds or long leases.

 We have segmented the market as follows:-

 Terms of 3 years or less:             Short flexible leases and easy in/easy out terms.

 3-10 years:                           Medium term leases.

 10-15 years:                          Longer leases often required for newer and better quality accommodation.

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15-25 years:                       Long lease. Once the norm as an „institutional‟ lease.

Freehold/long lease:               Purchase option.

                               No of properties



                                                               3 yrs or less
                                                               3-10 yrs
                                                               10-15 yrs
                                                               15-25 yrs
                                                               Freehold/Long Lease purchase


Having considered the above information we would comment as follows:

       Terms of 3 years or less can be considered relatively short term allowing companies flexibility to
        move as their accommodation requirements change. 20% of available properties offered have short
        term arrangements.

       Leases of 3 to 10 years represent 58% of available properties.

       Leases of up to 10 years represent 78% of properties on the market.

       Lease terms of between 10 and 25 years would have been the norm ten years ago. Today terms of
        10 to 15 years represent only 15% of available properties while leases of 15-25 years have almost
        disappeared. A 15 year lease is now considered an institutionally acceptable term.

       Properties available to purchase represent only 7% of the available supply.

Reflecting the national trend, Newcastle‟s office market has moved towards shorter and more flexible leases.
There is a shortage of opportunities for prospective owner occupiers.


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The Ouseburn Valley is situated in an important and strategic location close to Newcastle City Centre on its
eastern edge with good access by road and public transport to the City Centre and A167 Central Motorway.
Furthermore the Valley enjoys close proximity and ease of access to Newcastle‟s regenerated Quayside. The
developments on Newcastle Quayside over the past 10 years have stretched eastwards from the Copthorne
Hotel. Effectively all of the river frontage along to the Ouseburn save for one or two sites have been
developed out.

The Valley lies approximately 1km east of Newcastle City Centre. Until recently the area has been regarded
as somewhat of a commercial backwater with low value and bad neighbour land uses such as scrap metal
reclamation, timber merchants and car workshops being sited across the valley. In many instances these uses
have been squeezed out of more central or prominent locations. As such it represents a priority for
regeneration and an opportunity for development.

The Ouseburn covers an area of 100 hectares and is in a mix of ownerships including the City Council, the
Ouseburn Trust, developers and a number of private business owner/occupiers and landlords.

The Vision for Ouseburn
“By 2010, the Lower Ouseburn Valley will be a thriving, sustainable urban village in a unique riverside location
within the City of Newcastle. The best heritage features of the area will have been preserved and enhanced
within a vibrant townscape and an attractive landscape that will reconnect people with the diverse natural
environment. A wide range of businesses, especially those related to creative, innovative, multi-media and
cultural activities will be prospering in the area. The Valley will also be home to a stable, mixed residential
community. A wide variety of services and leisure opportunities will be available for residents, employees and
visitors to the area”.
As a designated Conservation Area, blending the historic legacy with high quality innovative design that
recognises the fabric and grain of the Valley will be essential.

Sustainable development is also seen as a crucial element of the regeneration of the Ouseburn encouraging a
balanced mix of land uses and meeting the economic and social needs of existing and future communities.

The Ouseburn Valley offers a wide variety of development sites and development opportunities. These
opportunities include sites that the City Council owns and is promoting, areas that are undergoing master
planning work and a number of smaller privately owned sites that are trying to establish their development

The Ouseburn Valley could offer business occupiers:

        Attractive environment and topography

        Water frontage sites

        Broadband and network access

        Excellent connectivity

        City Centre proximity

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The principal elements of the vision for the Ouseburn are:

        Live: Ouseburn aims to attract innovative housing schemes providing a broad mix of housing tenure
         and type. Developments will give a cross-section of people easy access to all the services they need,
         giving residents the opportunity to live and work successfully in the area.

        Work: The area is a sought after business location, especially for those involved in creative,
         innovative, multi-media and cultural activities. Small to medium sized enterprises are the
         predominant group and working links are encouraged to promote development, growth and

        Play: Ouseburn is home to a vibrant collection of venues, full of character and with imaginative ideas
         and friendly owners. Comedy, storytelling and all genres of live music can be found here, as well as
         satisfying food and drink.

Offices in Ouseburn
There has already been considerable development to date within the Ouseburn Valley area. From information
supplied by Newcastle City Council the Ouseburn is currently home to over 300 mainly micro businesses
employing over 2,000 people.

Office developments currently completed or in the process of being developed include the following.

Quayside Business Development Centre

The Quayside Business Development Centre is funded by Newcastle City Council to assist new and existing
businesses to develop and grow. It is located in Ouseburn Building (formerly Ouseburn School, one mile east
of the Newcastle Upon Tyne City Centre) and provides a total of 50 offices/workshops with integral office
space for business start-ups. The Centre has a central reception and secretarial facilities including telephone
answering service. It also offers broadband internet access to all tenants. Adequate parking is available. The
centre has 2 meeting rooms; including a large well-appointed Conference Room available for hire on an hourly

It is part of a regional project e-Business Foundation which offers support during the incubation period
including legal, technical, marketing etc. The Business Development Centre is one of a growing portfolio of
business incubators operated by Newcastle City Council.

There are currently six vacant rooms all circa 200 sq ft although there are two companies interested. We
have been informed that this is unusual as the Centre is normally nearer 100% occupied. Rental charges are
subsidised in the first 2 years at a rent of circa £18 per sq ft. The rent in the third year increases to £20 per sq
ft. In April 2007 the Centre is introducing a rent of £22 per sq ft from the fifth year of the term. The charges
are an inclusive rent to include rates, heating, lighting etc. Units range from 100 - 700 sq ft and are available
on a flexible licence on a 4 week notice period. There is no minimum term.

The premises are occupied by a range of companies including IT, media, design, financial, recruitment,
software development, telecoms, etc.

Lime Square

Lime Square is seen by the joint developers Howard Holdings Plc and Metier as being a landmark office
development providing good quality office accommodation at the south-eastern boundary of Ouseburn.
Positioned at the junction of City Road and Cut Bank, Lime Square looks east over the River Tyne towards the
mouth of the Ouseburn, and west to the Tyne Bridges.

The accommodation is arranged over ground, first and second floors and extends in total to 399.90 sq m
(4,304 sq ft). The developers will give consideration to letting floors individually from 55.30 sq m (595 sq ft)

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There are up to 22 on site car parking spaces available with the accommodation. The developers will
consider either a sale of the accommodation by way of 125 year ground lease, or a letting for a term by
negotiation at a commencing rent of £17.50 per sq ft exclusive.

The office development is part of a larger residential scheme and the two wings of offices within the scheme
are separated by a central glazed circulation space which is effectively shared between office and residential
occupiers. This effectively splits the office scheme into three-storey blocks.

Mushroom Works

Mushroom Works is an artist-led gallery and studio space in Newcastle upon Tyne housing a diverse range of
creative businesses. The converted warehouse has a collection of studios and a gallery based in the
Ouseburn Valley. It has twelve studio spaces, plus a gallery/exhibition space, meeting room and resource
room. There are also communal kitchen facilities and a wireless broadband internet connection. The studios
operate a selection process to ensure that applicants are professional artists who will broadly fit with the other
occupants. We have been informed that there is currently a waiting list for studios. The occupiers are
predominantly artists but there is currently an office occupier as it is an office design organisation.

Studio charges are inclusive of rent, rates, water and upkeep of the communal areas in the Mushroom Works.
Power charges calculated on an individual basis and based on metered consumption. Small Studios (up to
200 sq ft) are £27 per week. Large Studios (up to 350 sq ft) are £46 per week. De-selection will take place
when a studio holder no longer fills the criteria required by the Mushroom Works.

Woods Pottery
Project North East's latest renovation project, Woods Pottery adds to the growing number of cultural and
social enterprises based in Ouseburn. Three two storey buildings on Stepney Bank, built in 1875, have been
refurbished to provide serviced accommodation, aiming to provide accommodation for new businesses, on
flexible lease terms, mainly for arts oriented businesses. The buildings provide accommodation to let rather
than for sale.

Lime Street

Ouseburn Trust has a number of properties at 51 – 59 Lime Street available at a rent of £10 per sq ft. The
offices range in size from 406 sq ft to 3487 sq ft. All of the premises are let and tenants include a disability
arts organisation, pilates studio, a film producer, martial arts venue, a tile distributor, the Trust‟s own offices
and Home Housing/Byker Bridge Housing.

Off Quay Building

The Off Quay Building has been providing office and studio accommodation to small companies for over 10
years. The building provides 36 offices and studios ranging in size from 20.44 sq m (220 sq ft) up to 185.80
sq m (2,000 sq ft). Occupiers within the building include a taxi company, cleaners, companies in the music
industry, who tend to require poor quality and lower cost accommodation. Rental levels within the building are
circa £4/£5 per sq ft per annum, on 6 month licenses.

The Old Forge and Maling Studios, Walker Road

Workspace has been created in the former Maling Pottery Ford B Works, now Hoults Yard which is accessed
from Walker Road and sits approximately ½ mile east of the Steenbergs Yard. This is an experiment for
Hoults Estates who have nurtured many manufacturing and storage business over their years in the complex.
This new development by the building owners has seen them create good quality studio and office space,
trying to bring out the best features of the converted historic buildings. This is a regeneration programme
within existing former industrial/storage units. The developers have sought to create attractive style studio
accommodation with a specification that includes Category 2 lighting, open timber trusses, gas fired central
heating to perimeter radiators, server patch panels and CAT5 data cabling and floor level perimeter trunking.
Typical sizes of accommodation are from 28.69 sq m (309 sq ft) up to 114.75 sq m (1,235 sq ft). The
accommodation is offered on flexible internal repairing and insuring license arrangement at a rental that

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equates to approximately £14.50 per sq ft, exclusive of car parking. Whilst within the suites themselves the
accommodation is attractive it is fair to say that Hoults Yard still has the overall feel of an industrial complex.

St. Peter‟s Basin, Walker

St. Peter‟s Basin lies outside of Ouseburn Valley and is essentially viewed as a residential development. It
was to some extent the original riverside regeneration scheme on the east side of the city. This scheme is
over 10 years old and can be regarded as a great success in terms of residential regeneration. Essentially the
St. Peter‟s Basin scheme is residential in nature and benefits from being developed around a small marina.
Within the scheme the developers constructed three levels of retail/office accommodation. Whilst over the
years the retail has proved difficult to let, the offices have generally approved popular to companies looking to
rent and buy. Typical unit sizes are between 63 sq m (680 sq ft) and 162.58 sq m (1,750 sq ft). We have
been informed that the units usually let at between £10 and £11 per sq ft per annum exclusive of rates,
service charge and VAT. In terms of sale values, recent sales of units we are advised have been
approximately £120 per sq ft.

Typically to date the supply of offices within the Ouseburn and East End of the City have been offered in the
market place on a to let rather than for sale. The aim of the Council and organisations such as Project North
East has been to provide flexible accommodation to start up companies usually on an easy in-easy out basis.
The success of this policy is clear for all to see in terms of the occupation levels achieved by the existing
buildings and a number of new jobs have been created within the Valley.

Demand for offices

The demand for smaller suites of offices (i.e. up to 1,500 sq ft) is clear and can be seen in the success of the
various schemes that have been carried out already within the Ouseburn Valley. From discussions with a
number of office providers it appears that there is an extensive waiting list for accommodation. There are also
several companies that are actively looking at the opportunity of acquiring, on preferably a freehold basis,
larger office suites of up to 5,000 sq ft.

Having carried out the review of enquiries we have received over the last 12 months, it would appear that
there have been circa X enquiries for accommodation close to the city centre which could have been directed
to Ouseburn if suitable accommodation had been available. Of these, the majority of the enquiries below
464.50 sq m (5,000 sq ft) have been seeking accommodation on a freehold basis.

The existing buildings within the Ouseburn Valley already cater for start up units providing them with small,
flexible leasehold accommodation. There does appear to be a shortage in the market place of office
accommodation providing SME‟s with the next level of accommodation and giving them an alternative to short
term leasehold accommodation. The managers of the Business Centre have clearly identified within the
existing businesses within the Ouseburn a demand for freehold/long leasehold accommodation.

It is our view that given the success of the office schemes to date, the proposed environmental improvements
in the area and with the backing of Newcastle City Council, that the Ouseburn Valley area has the potential to
sustain an office quarter aimed at smaller occupiers, say up to 10,000 sq ft and offering a range of tenure
including freehold purchase where possible.

Financial Viability

It is extremely difficult at the present time to be precise with regard to rents and anticipated purchase prices
without reference to a scheme and specification. However, for initial appraisal purposes and given sales of
new build office units of circa 1,500 sq ft elsewhere in the City, we estimate that sale figures of circa £160 to
£185 per sq ft would be achievable.

On a traditional leasing basis, it is highly likely that occupiers will be seeking a fairly short term lease i.e.
perhaps a 10 year term with a rent review and break option at the end of the 5 year, or a 6 year term with a
rent review and break option at the end of the 3 year. We are of the opinion that the market would be
prepared to pay between £14 and £16 per sq ft per annum exclusive of rates, VAT and communal service

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                                                                        NEWCASTLE CITY COUNCIL
                                                                   OFFICE MARKET STUDY

We have undertaken a series of model development appraisals based upon the above figures in order to test
the build costs which can be sustained……………………………………………………………………………….


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