It’s been just over two years since the opening of our first, dedicated Tees Valley office and it’s amazing to look back and see just how far we’ve come in such a short space of time.
While much of this growth is down to the fantastic team we have assembled, who really do go above and beyond to service their clients, it is also testament to the fantastic work being done across Tees Valley to help reposition the region as a real Northern Powerhouse punching well above its weight.
Traditionally, the region’s engineering, energy and chemicals industries have been the area’s economic driving force, and while that remains the case today, significant developments such as Teesworks and TeesAMP are positioning the region as a global leader in carbon capture and storage and embracing these green industries of tomorrow will undoubtedly herald the beginning of a new dawn for the area.
Its strategic location on the east coast and access to major ports, rail freight terminals and the A1(M), has also helped attract investment from significant players such as SeAH, BP and The UK Government and naturally, this has had somewhat of a knock-on effect for other markets.
Each and every week, our team are receiving calls from people relocating to Tees Valley seeking quality housing; businesses seeking office and warehousing space and investors looking to capitalise on the region’s growing hospitality and leisure sectors.
Amidst all of the global economic uncertainty, if there’s one thing we can be sure of, it’s that Tees Valley has a prosperous future ahead of it and we truly believe that there has never been a better time to join the Tees Valley business community - Joseph I’Anson, Director at Bradley Hall Tees Valley.
Office
Tees Valley & Durham’s economic drivers include engineering, energy and the chemicals industry. These sectors tend not to generate significant amounts of office demand, while the main office-using sectors of professional, finance and information remain under- represented (as reflected in their location quotient scores of less than 1.0). The public sector, by contrast, accounts for a much larger share of jobs here than it does nationally. Darlington in particular looks set to benefit from its successful bid to host the HM Treasury’s Northern Economic Campus.
Office vacancies in Tees Valley & Durham (currently 6.1%) have not moved much over the past several years. This is likely partly because of the market’s relative absence of large corporate occupiers, many of whom have been downsizing their office footprints since the onset of the pandemic. Key recent lettings include Everflow taking 29,000 SF in Peterlee. The expanding water company’s office at Traynor Business Park opened in June 2023 and is triple the size of its previous one. Other significant deals of late include GMI Construction and Unitel taking a total of 11,000 SF at Cavendish House in Stockton as well as E.On Control Solutions leasing 2,500 SF at Mandale Business Park in Durham, all around the turn of the year.
Construction activity has fallen away in recent quarters, with One Milburngate the only significant scheme in the pipeline. The 54,000-SF speculative office in Durham is being delivered as part of a larger mixed-use development. Boho X, a 60,000-SF scheme that forms part of Middlesbrough’s Digital City project, delivered in early 2023. The building tailored towards digital and creative companies was jointly funded by Middlesbrough Council and the Tees Valley Combined Authority in the latest example of local authority intervention being needed to get schemes out of the ground.
Average office rents in Tees Valley & Durham have risen by 3.3% over the past 12 months. However, the market has failed to generate long-term rental growth and has been one of the UK’s weaker performers over the past decade (10-year average rent growth is 1.3%). Top-end headline rents of £15–£18/SF are location-dependent and rent-free periods of two to three years are the norm on 10-year leases.
Investment has been muted over the past few years, reflecting investor caution around the office sector and, more recently, rising interest rates. Volumes have been propped up by sub-£5 million sales involving private property companies in recent quarters. The Treasury’s arrival in Darlington seems to have boosted its attractiveness somewhat, with both the Whessoe Building and Barnard House changing hands in Q1 2023.
Stockon-on-Tees
The Stockton-on-Tees Submarket in Tees Valley & Durham contains about 3.1 million SF of office space, which represents a sizable chunk of the market’s inventory. The vacancy rate has fallen significantly over the past year, and at 6.9%, the rate was below the 10- year average as of 2023Q3.
Net absorption over the past year came in at about 71,000 SF, substantially above the five-year average. Rents grew by 3.1% over the past 12 months, easily exceeding the 1.0% average annual change over the past decade.
There are no supply-side pressures on vacancy or rent in the near term, as nothing is under construction. Though the pipeline is empty, the submarket has seen recent development. Roughly 42,000 SF has delivered over the past three years, representing an inventory expansion of 1.4%.
This has been a somewhat active submarket for office transactions in recent years, though that momentum has slowed in the past year.
Middlesbrough
The Middlesbrough Submarket in Tees Valley & Durham is a midsized submarket that contains around 2.6 million SF of office space. The vacancy rate has fallen somewhat over the past year, and at 12.5%, the rate was well below the 10-year average as of 2023Q3.
Net absorption over the past year came in at about 160,000 SF, substantially above the five-year average. Rents grew at a strong clip of 2.8% over the past year. While undoubtedly a solid result, this does represent the weakest rent growth observed in Middlesbrough in several years.
There is 16,000 SF underway in Middlesbrough, representing a 0.6% expansion of the existing inventory. This represents a continuation of new development in the submarket, which had already seen 150,000 SF deliver over the past three years, representing an inventory expansion of 6.1%.
Only one deal has traded over the past 12 months in the Middlesbrough Submarket, and only a handful of properties generally trade here in an average year.
Redcar and Cleveland
The Redcar & Cleveland Submarket in Tees Valley & Durham is a midsized submarket that contains around 1.2 million SF of office space. The vacancy rate has risen significantly over the past 12 months, and at 6.3%, the rate is the highest it’s been in more than five years.
Net absorption was negative over the past year. This is a continuation of the trend: Net absorption has registered an average annual decrease of -9,100 SF per year over the past five years. Rents grew by 3.5% over the past 12 months, easily exceeding the 1.3% average annual change over the past decade.
There are no supply-side pressures on vacancy or rent in the near term, as nothing is under construction. Moreover, the inventory has actually contracted over the past 10 years, as demolition activity has outpaced new construction.
Only a handful of properties have traded in the Redcar & Cleveland Submarket over the past three years.
Darlington
The Darlington Submarket in Tees Valley & Durham is a midsized submarket that contains around 1.6 million SF of office space. The vacancy rate has fallen moderately over the past year, and at 1.9%, the rate was well below the 10-year average as of 2023Q3.
Net absorption over the past year clocked in at about 29,000 SF, moderately above the five-year average of 20,000 SF. Rents grew by 3.3% over the past 12 months, easily exceeding the 1.4% average annual change over the past decade.
There are no supply-side pressures on vacancy or rent in the near term, as nothing is under construction. This will further prolong the lack of development, which has now lasted more than three years.
The Darlington Submarket saw about 6 sales over the past year, consistent with the handful of trades that typically close in a given year.
Industrial
Tees Valley & Durham’s economic drivers include advanced manufacturing, offshore oil and gas and petrochemicals. It is also a significant multimodal logistics hub with access to major ports, rail freight terminals and the A1(M), providing direct access to both Edinburgh and London. Amazon, Tesco, Caterpillar and Hitachi are among the market’s largest industrial occupiers.
Although Tees Valley & Durham’s industrial vacancy rate (currently 2.2%) has begun to rise, market conditions remain tilted in landlords’ favour (vacancies have been as high as 9.4% in the past decade). Net absorption has amounted to 2.1 million SF over the past 12 months, largely due to Amazon opening a 2 million-SF facility at Wynyard Park, its third facility in the area. The e- commerce giant has been attracted by the market’s road and port connections as well as comparatively affordable rents, labour and government incentives. Activity has otherwise been concentrated at the smaller end of the market, with trade counter operators particularly active. Travis Perkins, Howdens and Hire Station have all taken 10,000–20,000 SF in recent months.
Vacancies face further upward pressure in the near term as new supply comes on stream at Integra 61. Citrus Durham’s ongoing development includes Connect 298, a 298,000-SF standalone speculative project understood to be largest of its kind in the North East of England. Meanwhile, huge new facilities of around 1 million SF are set to be built for South Korean offshore wind turbine manufacturer SeAH Wind (1.1 million SF) and lithium refinery Green Lithium. Tees Advanced Manufacturing Park (TeesAMP) is perhaps the most noteworthy recent multi-tenant project. All but one of the 15 units in the 180,000-SF first phase were occupied as of mid-2023.
Fuelled by tight vacancy and broad-based demand, average industrial rents in Tees Valley & Durham are rising strongly. They have grown by 10.0% over the past 12 months, placing the market among the country’s top performers. While CoStar’s Base Case forecast scenario calls for rent growth to slow, it is expected to fare better than the local office and retail sectors in the coming months.
On the investment side, sentiment towards industrial property remains strong, though transaction activity has fallen way in line with rising interest rates and elevated debt costs. Among the larger warehouses to change hands since September’s ‘mini’ budget was ICG’s acquisition of a Morrisons distribution hub as part of a larger portfolio. The purchase of the multi-let Array building in Chester-le-Street by a private investor for £11.8 million at a 6.1% yield was the biggest deal by value to complete in 2022.
Stockton-on-Tees
Stockton-On-Tees is a large submarket relative to the national norm and contains about 14.2 million square feet of industrial space. The recent instability hasn’t made a huge impact on the vacancy rate, although vacancies (3.2%) have ticked up slightly over the past twelve months. Net absorption over the past year came in at about 1.8 million SF, substantially above the five year average.
Rents grew by 10.2% over the past 12 months, easily exceeding the 6.7% average annual change over the past decade.
There is 140,000 SF underway in Stockton-On-Tees, representing a 1.0% expansion of the existing inventory. This represents a continuation of new development in the submarket, which had already seen 2.1 million SF deliver over the past three years, representing an inventory expansion of 17.5%.
Industrial properties traded with regularity last year, consistent with the generally high level of activity over the past three years.
Middlesbrough
Middlesbrough is a midsized submarket containing around 4.3 million square feet of industrial space.
The recent instability hasn’t made a huge impact on the vacancy rate, although vacancies (3.5%) have ticked up slightly over the past twelve months. Net absorption over the past year came in at about 25,000 SF, a positive result, but less than half the five year average.
Rents grew by 9.4% over the past 12 months, easily exceeding the 5.8% average annual change over the past decade. The 110,000 SF currently underway in Middlesbrough represents 2.5% of inventory. This represents a continuation of new development in the submarket, which had already seen 82,000 SF deliver over the past three years.
This has been a somewhat active submarket for industrial transactions in recent years, though that momentum has slowed in the past year.
Redcar & Cleveland
Redcar & Cleveland is a midsized submarket containing around 5.4 million square feet of industrial space.
Vacancies (currently 1.6%) have declined over the past year, but there is little room left for further tightening. Net absorption clocked in at a decrease of 58,000 SF over the past year. Over a longer timeframe, the submarket has been stagnant: Net absorption has posted a negligible average annual change over the past five years.
Rents grew by 10.5% over the past 12 months, easily exceeding the 6.3% average annual change over the past decade.
There are no supply-side pressures on vacancy or rent in the near-term, as nothing is underway. Moreover, the inventory has actually contracted over the past 10 years, as demolition activity has outpaced new construction.
Only one deal has closed over the past year, and only a handful of properties generally trade in a normal year.
Darlington
Darlington is a midsized submarket containing around 8.6 million square feet of industrial space.
Vacancies (currently 1.0%) have edged up slightly over the past year, but this is not overly concerning, given that the overwhelming majority of stock remains full. Annual net absorption came in at a decrease of 23,000 SF over the past year. The story improves over a longer timeframe: Over the past five years, the submarket has posted net absorption of about 290,000 SF per year, on average.
Rents grew by 11.4% over the past 12 months, easily exceeding the 7.3% average annual change over the past decade.
There is 57,000 SF underway in Darlington, representing a 0.7% expansion of the existing inventory. This represents a continuation of new development in the submarket, which had already seen 29,000 SF deliver over the past three years.
Darlington saw about 4 sales over the past year, consistent with the handful of trades that typically close in a given year.
Retail
Retail rents in the Tees Valley & Durham Market were decreasing at a -4.6% annual rate during the third quarter of 2023, which represents the weakest performance in over five years. In addition to 320,000 SF that has delivered over the past three years (a cumulative inventory expansion of 1.1%), there is 130,000 SF currently underway. Vacancies in the market were somewhat below the 10-year average as of 2023Q3, but were essentially flat over the past four quarters.
Total employment increased by about 2.8% over the past year. Over the past five years, employment has grown at an average annual rate of 0.8%, or an additional
26,000 jobs cumulatively. Nationally, employment has increased at an average annual rate of about 0.8% over the past five years. Retail trade employment has shown little change over the past five years. During that timeframe, retail jobs have posted an average annual change of -0.1%, compared to a -0.7% average annual change nationally.
Stockton-on-Tees
Vacancies for retail properties in Stockton-on-Tees were under the five-year average during the third quarter, but they were essentially unchanged from this time last year. The rate also comes in below the region’s average. Meanwhile, rents have collapsed in the past year, tumbling 4.9%. That is the weakest performance observed over the past five years.
As for construction, Stockton-on-Tees does not appear to face a burgeoning wave of supply pressure, and the pipeline is pretty empty. Retail properties trade with regularity in Stockton-on- Tees, but deal flow fell short of the historical average in the past year. Relative to Tees Valley & Durham, market pricing sits at £133/SF, which is right in line with the region’s average pricing.
Middlesbrough
Vacancies for retail properties in Middlesbrough were under the five-year average during the third quarter, but they were essentially unchanged from this time last year. The rate also sits above the overall market’s average. Meanwhile, rents have collapsed in the past year, tumbling 5.1%. That is the weakest performance observed over the past five years.
As for construction, Middlesbrough does not appear to face a burgeoning wave of supply pressure, and the pipeline is pretty empty.
Retail investors are reasonably active in Middlesbrough, and that remained the case in the past year. At £109/SF, market pricing is considerably lower than the region’s average pricing.
Redcar & Cleveland
Retail vacancies in Redcar & Cleveland were roughly in line with the five-year average during the third quarter, but they increased modestly in the past 12 months. The rate also sits above the overall market’s average. Meanwhile, rents have collapsed in the past year, tumbling 4.4%. That is the weakest performance observed over the past five years.
As for the pipeline, development has been relatively steady over the past few years in Redcar & Cleveland, and that trend has continued in the third quarter.
Retail investors are reasonably active in Redcar & Cleveland, and that remained the case in the past year. At £110/SF, market pricing is considerably lower than the region’s average pricing.
Darlington
Retail vacancies in Darlington were roughly in line with the five-year average during the third quarter, and they were essentially unchanged from this time last year. The rate also comes in below the region’s average. Meanwhile, rents have collapsed in the past year, tumbling 4.3%. That is the weakest performance observed over the past five years.
As for the pipeline, development has been relatively steady over the past few years in Darlington, and it remains up and running today.
Retail properties trade with regularity in Darlington, but deal flow fell short of the historical average in the past year. Market pricing sits at £139/SF, which is above the average pricing in Tees Valley & Durham.
Licensed and Leisure
Following the opening of the region’s first Taco Bell, a new café restaurant at Raby Castle and a luxury Pangea restaurant in Norton will soon follow suit, as the region’s hospitality and leisure sector continues to recover from the effects of the pandemic. While there is limited data available for licensed and leisure transactions across the Tees Valley, we predict that the spate of recent investments and in particular the increase in housebuilding, as well as new office and industrial developments, will encourage further investment into the sector moving forward.
*As reported by CoStar
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