Why investors are excited about the Newcastle CBD

Considered an investment safe zone due to its successful approach to the COVID-19 pandemic, the Newcastle CBD has become one of the better-placed office market performers during the pandemic, successfully keeping occupancy and demand levels high, according to the report.

Ray White found that, unlike other locations, the work-from-home set-up was short-lived in Newcastle, allowing vibrancy to return to the CBD in record time.

“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,” Ray White Commercial Newcastle director Lee Follington said.

The highlight for Newcastle, however, has been the growing demand for investment stock, 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,” Mr Follington noted.

As such, vacancies stood at 7.8 per cent in January 2021, only slightly above the 7.6 per cent recorded last year.

In other words, of the 251,597 sq m of office stock offered within the area, only 19,656 sq m currently remains vacant.

Rents for prime assets and secondary assets have also remained stable, with the average rate for prime assets sitting at $365/sq m, and at $255/sq m for secondary assets.

Aside from a sound leasing enquiry and stable rental levels, an increase in incentives is expected to increase as new stock enters the market, further adding to Newcastle’s popularity.

Over the next quarter, several projects are expected to be completed, including The Store at 854 Hunter Street (15,000 sq m) and 130 Parry Street (3,600 sq m) – both of which currently have approximately 60 per cent of the space pre-committed. An additional 8,200 sq m will also be available in 2022 as part of the Darby Plaza development.

“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 director noted.

Overall, the outlook for 2021 remains positive for Newcastle’s office market as the appetite for investment stock sits strong, with cashed-up private buyers expected to drive further growth in activity, the director added.

As a result, yields may see some compression once competition levels increase as occupancy levels remain elevated.

“An exciting time for the Newcastle CBD to grow in a post COVID-19 economy, strengthened by rejuvenated interest together with the local investment seen over the past few years,” Mr Follington concluded.