THE last four weeks has seen a distinct cooling in the global economy as the true force of interest rate rises in the UK and US come to bear. Venture Capital Funds are cooling as, in turn, are equities and the UK property market. Unit Link Funds in particular have virtually dried up on their spending and the majority of the UK institutions are now returning to their old ways of shutting up shop over the summer period with a view to re-assessing the market in September. Fortunately the North-East property market is well placed to ride the storm. The shining light within our region is the city centre office market. The lack of new development coming through in 2007 and 2008 means there will hardly be any new Grade A offices available in the city and those that are available, it would follow, will be much sought after by occupiers looking to expand. Some agents around town have talked about rents hitting a high of £24sq ft this year. If one assumes that one swallow does not make a summer, then to move rents 20% from £20sq ft to £24sq ft is somewhat ambitious. Notwithstanding this, there is certainly rental growth in our city and as the market returns to strong property fundamentals, it is this element which means that city centre offices in Newcastle are top of most institutional and private investor shopping lists. The best way to reflect this demand is the overwhelming interest in the former Zurich building on Fenkle Street. This virtually empty office building, next door to the Old Assembly Rooms, presented a refurbishment and redevelopment opportunity and was offered for sale in June at £7,200,000 and attracted more than 30 bids, all above the asking price. The identity of the party under offer is still a closely guarded secret but rumours are circulating that their offer was in the region of £10,750,000, and therefore 50% over the asking terms. Elsewhere other opportunities in the city have also been attracting strong interest from investors. Melbourne House on Melbourne Street has recently changed hands for a sub-6% yield and King Sturge has been involved in the acquisition of over £60m worth of city centre offices in the last six months alone. The sale of the former Bannatyne’s Casino was originally structured as a rental guarantee agreement whereby an investor buys the freehold of the property with a leaseback in place from the developer for a period of say two years. From the purchaser’s point of view, the property is income producing from day one and from the vendor’s perspective, he is selling at maximum value even before he has a tenant lined up to occupy the building. While rental guarantee agreements are now a thing of the past, and will not be accepted in today’s market, the fact that developers have been able to impose them shows how strongly the cards have been stacked in their favour. In summary, while the future is looking less bright around other regional centres in the United Kingdom, the North-East investment market is holding up well and in particular with city centre offices leading from the front, should remain strong and a good outlet for investors still looking to place funds. Dickon Wood is an investment partner at King Sturge’s Newcastle office. | 
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