Strong Newcastle office market maintains positive outlook

THE Newcastle CBD has been one of the better office market performers during the COVID-19 period, keeping occupancy elevated as more companies look to regional locations to grow their businesses, according to Ray White Commercial’s latest Between the Lines* research.

“The limited impact of the pandemic on the local workforce has kept vibrancy in the Newcastle CBD, while the continued investment into the city over the past few years has done much to stimulate activity,” said Ray White Commercial Newcastle Director Lee Follington.

“Leasing enquiry has remained sound keeping rental levels stable, and with new stock anticipated to enter the market this year, we may see some change in the limited incentives currently on offer in the marketplace.

“Something to watch this year is parking spaces emerging as a significant tenant requirement and creating a substantial distinction between spaces that have parking allocations and those without.

“The highlight for Newcastle however has been the growing demand for investment stock, this has been across the marketplace from smaller strata office offerings, through to larger freeholds, development sites, and the older showroom markets located in the area.

“Private investors, taking advantage of low interest rates or diversifying for greater returns given the low bond yields have ensured yields have tightened.

“The outlook for 2021 remains positive for the Newcastle office market. The completion of new supply will add high-quality stock into the marketplace which will be attractive to new and growing businesses to the region.

“However, this may slow further rental growth opportunities with incentives likely to play an increasing role for A grade assets while B grade and more secondary assets may see some divide in rentals achieved, albeit with limited incentives.”

“Despite 2020 being a year of uncertainty for most office markets due to the pandemic, the Newcastle office markets have fared well with only limited change in take-up recorded at -622sqm over the whole year,” said Ray White Commercial Head of Research Vanessa Rader.

“Across most Australian CBD and Non-CBD metropolitan markets we’ve seen strong declines in demand resulting in large increases to vacancies, however many regional markets have bucked the trend with a combination of low infection rates keeping employment elevated, as well as the growth in interest for these markets as ‘safe zones.’

“Unlike other locations, the work from home movement was short-lived in Newcastle and vibrancy returned reasonably quickly to the CBD with many operations resuming, albeit providing for social distancing.

“As such, we’ve seen vacancies recorded in January 2021 at 7.8 per cent – which is only slightly up on the 7.6 per cent recorded last year after the completion of the Gateway project.”

*Ray White Commercial Between the Lines – Newcastle CBD Office Market Overview – March 2021.